It’s time to get going on 2021 income taxes.
Is there a way to generate a record/report of all staking income received in the NNS dapp for one account?
Unless there is formal guidance by the USA IRS that designates otherwise, for the purpose of this question let’s assume that “merge maturity” and “spawn neuron” are taxable income events.
Spawn event, to the best of my knowledge, is not recorded (it seems to be ex-nihilo).
Rewording your question, is it possible to generate a report of all staking income( as defined in terms of merge maturity and spawn) on chain out of one account that may contain multiple neurons maturing differently, the answer seems to no.
I would love to proven wrong.
i Fred,
did you ever find a solution for this problem?
I have been looking all over…
Best,
HPB
Have you talked to, or hired a tax consultant as of yet? Are you in a highly tax-regulated state in the USA? I can provide what advice I have gotten on this exact question.
However, I will need to make it exceptionally clear/ explicit that what I share is not tax advice, is not financial advice, and is only what I personally have been told by my own advisors. You can infer, or use this at your own risk and on your own accord. I will not be held liable for any information I provide/ share. This (these) are only suggestions or what works for me in my situation.
My first question/comment will be this,
1.) Do you have an avg. Share (token) price for the ICP tokens you have purchased and staked? Keep that information readily in your documents for ICP. Continuously monitor and update the Avg. as you purchase or add
2.) on the NNS dapp you will now (after the maturity modulation updates) see a staked ICP that should now reflect the ICP you actually purchased (or included previously merged maturity if it was added to the stake prior to the new upgrades. See note at the bottom if you did have some from prior). This is where you take the average Token price that you purchased and, when you fully dissolve and disburse the tokens (& sell) you report you paid x (your avg. token price) for however many ICP you originally staked.
3.) you will now (after the modulation update) see the amount of ICP maturity. You can A. Auto-stake it into your neuron. B. manually merge the maturity to your Neuron or C. Spawn maturity to newly minted ICP.
A.1. Auto staking will automatically add maturity to your neuron (this will show on your neuron). Please note, however, that this option does not create a tax event according to my consultant in my area of the USA (which is highly tax regulated). Only when the neuron is fully dissolved and the newly minted ICP tokes are disbursed to me will it create a taxable event.
B.1. Manually merging is the same effect as auto staking except you manually add the amount of maturity you want (or all of it), just on your own not automatically each day rewards are disbursed.
C.1 Spawning maturity is a taxable event in my area (again highly tax regulated). If decide to spawn maturity you should report you paid $0 for however much is disbursed and minted from your maturity. For example, say I had 100 maturities and spawned it. I received 103.5 ICP when it was finally disbursed to my account. I would report I paid $0 for 103.5 ICP at whatever price you sell it at.
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4.) if you stake all of your maturity (either manually or auto) until the moment you fully dissolve your neuron you could reasonably not report any increase or maturity until the moment you sell them ALL and then you would simply say (again) you paid x for your original ICP (your average token price) and then paid $0 for however much maturity was disbursed to you.
For example, if I had 10 ICP and paid $4. My token price for those remains $4, then after staking I received 20 ICP in maturity. In total when my neuron fully dissolves I end up with 30 ICP and I sell them all. But wait! ICP price went up so my 10 at $4 is now 10 at $10!
I paid $40 for the original investment. Now, it is worth $100! So, I would report the increase on the ones I paid for ($100-$40=$60 profit), then I would say I paid $0 for 20 ICP which I also sold at $10 (20*10=200) so in total, I would report a gain of $260.
*note for ICP merged prior to modulation update. If you merged ICP prior to this update and have no clue how much you were given. You may be able to dig back in your records to determine how many you purchased and sent to your neuron(s) (possibly by looking at your NNS wallet and seeing how much and from which wallet you added to your stake). Get that original token amount and subtract the number you now see (after the update) that is how much ICP you originally invested. You can use the same style of calculation to determine how to report ICP already merged prior to the updates.
If none of this helps, please specify what exactly you are looking for in order to report. It sounds more complicated than it really is.
I highly suggest you seek a tax consultant. Honestly, H&R Block is not exactly what I would recommend. I suggest you find a tax attorney/ CPA in your area to represent all your interests and help you process these tax questions. They may cost a tad more than H&R Block, however, the services received are almost always more useful in the long term (a significant source of in-depth education on US tax code/ laws in your area/ ability to represent you should anything occur).
Please, do yourself the favor and not cheap out on the tax advice in your area. Even if you pay for one session (not advisable) just to have someone really look at your situation and tell you how to report maturity in your area. This is something I do not believe the ICP community can readily make available in a pre-filled form or even with a cost basis form. This is one of the things as stakeholders we are expected to do on our own accord. This is what has been told to me by others in the community in my own journey.
EDIT: here are some useful/relevant links
https://wiki.internetcomputer.org/wiki/Maturity_modulation
Another useful comment I thought might be worth mentioning is… If you do use maturity to spawn ICPs and then use those ICPs for say purchasing SNS projects or using them within the ecosystem. I would first ask your consultant how that will work in your area. This, along with any projects that may be seen as securities in the future, may develop issues with government agencies such as the SEC for example and thus I would again first consult with a tax attorney or consultant in your area to assure you are adhering to best practices for your individual situation.
@jsull9 That is an interesting analysis! I have one basic question. You seem to be saying that at the moment you convert maturity to liquid ICP, you treat that ICP as having a cost basis of 0 so that the taxes you pay if you sell will be capital gains. Another interpretation would be that at the moment you convert maturity to liquid ICP this is treated at income equivalent to the FMV of ICP at the time you convert, and any gains thereafter would be treated as capital gains.
So am I correct that your tax advisor is saying that the former is the case rather than the latter?
Also, treating the accumulation of maturity as a taxable event only at the time it is converted to ICP seems like a very aggressive and possibly risky approach. Besides talking to my own tax consultant, do you have any other resources? Also, is there any other token out there that has a similar flavor, where there is something like “maturity” that is not the same as the “token”? If so, it could be useful to look at discussions related to those tokens as well.
Yes, in my area my tax consultant/ CPA suggested that (as of right now after the maturity modulation update occurred) I do not have to report any maturity that I continuously merge and add to my stake. This is because of the maturity modulation update. i.e. newly minted ICP tokens are not actually created, dispersed, or minted until the time of full dissolve, OR I spawn them into liquid ICP. IF I choose to spawn them into newly minted ICP (for whatever reason, to sell use etc. etc) it then becomes a taxable event, where I report $0 cost basis and if I sell them, I use the price I sold it as for a cost basis.
According to my consultant anytime you receive any tokens as rewards, maturity etc. etc. this is a taxable event where you received x ICP for 0$. Yes, this must be reported as such or as capital gains.
However, if I choose to automatically stake maturity and never spawn it into newly minted liquid ICP , and then fully dissolve and disburse I will then use the maturity given as though I paid $0 for x amount and paid x amount for my initial investment.
This would be because A. newly minted ICPs are not given until the time the neuron fully dissolves (again assuming in this scenario I only auto stake maturity). Essentially they “do not exist” yet (unless again, I spawn and sell). That maturity is only symbolic of what ICP I could or will have at the time the neuron fully dissolves.
*Then/ you can also you use the maturity modulation on the dashboard to assume how much ICP per 100 ICP spawned.
Something that should be disclosed about my personal situation or the way I “do things”. I vote “no” on anything and all things relating to SNS projects including but not limited to ICP-ckBTC pairs as well as any decentralization sales. In my area, these are still highly speculative and could face the full wrath of the SEC. Thus, I assume (as a precaution) this will eventually occur and will have the ability to demonstrate I voted “no” to anything that may seem like unregulated security. As hopeful as I am for the future I believe that is the real risk users in my area or highly tax-regulated states.
Using $0 for the cost basis for my maturity or “voting rewards” in my opinion is far less risky than trying to assume a moving average, writing down explicitly what they cost, and how many you received during x, y, z. It just would be tedious tasks to spawn say every week, and then save and log as you go. I can understand why some might choose that method, however, I plan on auto-staking my initial investment/8 year neuron for the long haul… In full disclosure, this process may actually make your “taxes” through the roof the year you dissolve fully and have to report the maturity. However, my plan would be to sell over a span of time as a boost to income during my glory years. In this case, I could reasonably dissolve a neuron(s) and then slowly sell off which may create less of an impact after the newly minted ICP reported at $0 has been minted and held for over a year.
As for other resources, I think this may depend on your country. I have some resources for the USA that might be limited in scope. They are mainly just sites with information on taxable events, SEC regulations, rules, and guidelines.
One final note/ disclosure. It is said in several codes of ethics, that those with an investment worth more than x amount (generally anything on or above $5000 USD) should refrain from speaking on anything that may be seen as unethical due to the nature of their investment to prevent biases. With this in mind, I (again) disclose that I fall under this category.
Therfore, I will and should refrain from speaking on any other topics outside of this. I.e. anything to do with how the network should be managed or projects ethical obligations. This is (again) why I reserve the right to throw up numerous “no” votes and have distanced myself (as I learn/ earn my software engineering degree).
Finally, as for other coins/ tokens with a similar “taste” as this. I have been searching and despite my objections or concerns with the community or the ICP blockchain itself, I will admit there is not much like it in terms of accessible staking, and producing products (even with the limitations they have). I only have a stake (long term un-dissolving auto-staking, 8-year-neuron) in the ICP blockchain. This is for many reasons. The foremost is personal safety concerns, not being educated enough (yet), nor finding a blockchain, crypto, token, coin, that is well… As advanced with as accessible UI as the IC.
I appreciate the time to respond and look forward to further conversation. My only intent is to distribute information to others that may be where I was when I first entered the community. Without impacting anything (beyond what’s at hand) with my own implied biases. I always accept feedback, challenge my opinions, and have civil discourse/ debate. Taxes/ tax time is stressful. If this approach help(ed) anyone’s nerves it was worth the time.
should any other approaches work in highly regulated states, I would love to discuss and hear explicitly what your consultants mention. Therefore I can carry said information to my own advisor and see if it’s applicable to my area.
Thanks again for the time and patience.
OH! final note. I was also advised that anything “swap” related is a taxable event as well. So for example, ICP-ckBTC swaps. In my area that’s a taxable event that is almost or nearly impossible to continuously track if you do so fruitfully without care or precise notes. Therfore, I will not be using any “swapping” features. Using DEX’s in my area is another thing I have yet to discuss with my consultant. So, I have nothin to add.
@jsull9
Thanks for that detailed and thoughtful reply.
FYI, I am in the US and in a highly regulated and taxed state (NY, no secret).
I guess there are many opinions. For example https://koinly.io/blog/how-is-staking-taxed/ has a very different opinion: first, that they are treated as Income when they are received, and that a “conservative” approach is to treat them as received as soon as you have the ability to withdraw them. For staked ICP, I believe you have the ability to withdraw the staking rewards as soon as you accrue them (or a week later after you request a withdraw and go through “modulation”).
To be honest, I doubt that there will only be an answer to any of these questions until there is clearer regulatory text. I know that the “modulation” thing was supposed to somehow get around this, but it seems a bit risky to me personally to assume that, as it is complete speculation on anyone’s part. (in my opinion)
So me, being rather conservative by nature when it comes to such things, would treat it as taxable income as soon it is accrued, and convert enough to ICP to sell to cover taxes.
I think what really might be helpful is to have an option to completely lock up maturity along the staked ICP so that it cannot be converted to ICP or sold. But would even that work? Could there not in principle be a secondary market to buy and sell neurons containing locked ICP and maturity? I don’t know if that is technically feasible, tbh.
Ahh, my friend. Where have you been? I also live in NY (not so much a secret if you dig into my profile lol). I actually, went out of my way to hire a CPA who does my taxes (from now on), yet is also a tax attorney themselves. So, during my anointed time (that I pay for) I have pecked away at these questions. My main objective in doing this is (and has been) to distribute it to this community. Only, as a means of some light-hearted “reassurance”. This topic (taxes) in particular caused me significant anxiety when first entering and after paying x amount I have been glad to find an opportunity to share it with anyone who may need to just read “real life” scenarios. It can be nerve-wracking (I found at least) to need to share or disclose to a newly hired consultant what you’re into without having at least read a few first-hand experiences maybe?
I too, want and try to be conservative in my approach. I was/ have been under the impression that taking $0 as my cost for rewards if anything is more conservative, yet will create more of a taxable event. That being using $0 assumes anything received is income. This is because of the *new maturity modulation" that some say is a sketchy tax doge. Prior, when this update was not in effect, everyday you received maturity you received ICP (in real time) then you have to calculate the moving cost average for the amount you received at the moving avg cost. Prior to this update, when ICP was directly minted and given to you it just opened up several red flags about reporting in our areas especially. This is because it was given to you daily. minted. created. in your “hands” the day you receive it.
Now, with the update. it is not in your hands at all until/ unless you spawn the maturity OR once your neuron fully dissolves. it has not technically been created nor has it been given to you. Only when you spawn or fully dissolve and have it disbursed is it actually created. If I have 300 maturity and merged it with my neuron I still only have 300 maturity, not 300 ICP that needs to report. Now, when I do finally actually create the minting event and these 300 ICP are minted then it is something to report. However, if I just simply say “auto stake” for 20 years I still do not have any ICP from maturity until it dissolves, the ICP is minted, and disbursed to me. It could be up 5% or down %5. This is why I think my approach might be just as conservative with the new modulation update. Because, even if the state looks into the maturity they themselves can see I only physically have what is inside the neuron (which doesn’t ever need to be reported until its sold) the maturity according to the IC wiki is only that until the moment it is minted, created and given to you. Therefore can be seen as “nothing” until the moment its minted and given to me, then sold.
So, for time’s sake let’s say in 2022 I spawned 100 ICP from maturity at the time of spawning I received 100 exactly, then I sold them immediately (after the 7 day spawning period) at a price of $6. If I am saying I paid $0 for the 100 ICP at $6 per ICP ($600) I would report this as actually earning an additional $600 in my income. so if I made $ 1 Billion USD last year (-.-) then sold these ICPs I would actually be showing NYS I earned 1 Billion and 600 USD.
As for your question and comment/ question
@bjoernek and @lara have extensively mentioned/ discussed (in prior threads) that, as nice or “cool” of an idea as it would be to have these “secondary” markets. Sadly, it would open a floodgate of individuals taking advantage of the most vulnerable community members profiting extensively and creating further disparities in the ecosystem. So, for these reasons among some technical, they do not want to open that door. I actually am hoping my comments and sharing my “first-hand experience” having paid for it in a sense helps the more marginalized community members (even down the road) in our highly regulated area of the world lol. It can be overwhelming, and sometimes you get FOMO. If this occurs I just hope to provide a basis or starting point when they come to these forums to search for said experience to read.
My only question to you would be to ask if you could elaborate on this
@jsull9
I would only need to “convert enough to ICP to sell to cover taxes” if indeed receiving “maturity” was treated as taxable income at that time.
In none of your discussions are you making a distinction between income and capital gains, which is a bit confusing to me.
In your assessment, you say that when you convert you treat it as receiving something of 0 value, so it sounds like what you mean is that if you later sell it for $1000, you would treat that as $1000 in capital gains, not income – which is very different in terms of tax rates.
If you have a tax advisor you recommend, you can always DM their contact info to me.
Thanks for the clarification. I did indeed forget to discuss the distinction between capital gains and income.
I uploaded a few NYS examples of capital gains here, as well as some useful links to some of the questions you have regarding the difference between income and capital gains.
https://www.tax.ny.gov/pdf/bus/ct/capital-loss-examples.pdf
https://www.tax.ny.gov/forms/income_cur_forms.htm
https://www.tax.ny.gov/pit/file/tax_tables.htm
The difference is individualized according to your situation. I will reach back out to my advisor (via email) and have them clarify this exact question and will re-work it into the discussion above. However, my guess is the difference would be time held and the information listed on the IRS website.
I do have an individual I use for my own (as mentioned) however, they are local. Let’s DM and see if it will be useful information location-wise (NYS does have different tax laws for various parts NYC Yonkers etc etc).
I personally, think using this state (along with CA) as an example would be super helpful for the community to have laid out in the format I think we both would like as a resource to disperse to the wider community.
Any answer to your question yet?
I tried ICscan but it doesn’t give me enough information to work with. Besides that, I don’t want just the data, but I also want it to be organized as a report and have it supported by tax filing companies like TurboTax. When I use Cointracker to gather my tax information for my crypto accounts, it’s so seamless. Reports are already made, and can be readily transferred to TurboTax. HOpefully, cointracker can provide support for ICP neurons/wallets.
Anyone have a software to recommend?
Another New Yorker here! I came across this old post and found it very helpful.
I’m a bit confused on all the recent legal hassle between crypto service providers (exchanges, loan providers, etc) and NY state.
Is staking technically illegal in NY? Or is it just that the various major exchanges are currently barred from providing such services? My current understanding is that it’s really the crypto exchanges and businesses that need to be worried and that the users are free to engage on any such service that is made available to them. Is that right?
If Coinbase and other crypto service providers are prohibited from providing staking to NY customers, do you see this as being problematic in the future for Dfinity / ICP NNS? This whole regulatory battle and arguments around certain entities being licensed to offer securities or provide certain services is all very confusing. NY is a frustrating state…
Thanks.
Well, I should start by welcoming you to the forum/ community! Next, I’ll go ahead and give you a “soft warning”. Discussing taxes, or any type of legal quarrel isn’t always received or appreciated on the forum.
It can spiral out of control very quickly… Into a rather deeply frustrating rabbit hole that is sometimes best left to the lawyers who passed the bar exam and not Joe Shomoe Jsul9 official IC armchair detective as he creates his project from the sidelines…
For the sake of these specific questions though…
I mean we have years to come of just, “My genitals go on the table”, “No, MY genitals go on the table. NOT YOURS”. Or, “I didn’t know we were measuring from the base and warmed up. I want a re-do”.
If Coinbase is given a “cease and desist”, or stops offering the ICP token to NYS there won’t be a viable legal option for NY stakeholders to sell or use the ICP token. Unless they use the sketchy methods and DEXs which is another can of worms.
We just saw the SEC go after Uniswap for this same type of thing that multiple projects on the IC are offering as well. There are solid case examples, an awful but rather upfront process for getting your bit-licence in NYS. One so slow it makes dial-up seem like webspeed. So, assuming these projects mean standing up against city hall, we are in for one hell of a ride over the next ten years…
It is, and it’s using outdated systems and methods. We could probably get more done if we started dueling each other over bird law again…
Also, for this post… I stopped reporting spawned maturity as income in my tax software koinly there is a specific function. A simple check mark box that you can calculate without it being counted as income which is what @victorshoup was helping me realize… though at the time I didn’t realize it…
Again, this is why I suggest you seek qualified tax attorneys or consultants in your area to discuss this over time. As things change… So does our understanding of crypto and how the government can come into our homes and take our lunch money via taxes without buying us dinner first or using lube.
EDIT: Oh and please note that the software to get the right numbers at the end of the year can run you anywhere from free to like 1000s of dollars depending on how many trades/ taxable transactions you make at the end of the year. If you have terrible hands, panic sell, day trade, gamble, or just a combination of everything like a bored loser in your mother’s basement… Then I suggest you save 1000s for the end of the year when you need to pay for the software and tax consultant and taxes on any gains. Or, the ability to take the losses, pay the software, and the tax attorney. Otherwise, this could get messy quickly… So, overall, if not careful you could be looking at a significant loss and the investment becomes pointless in a highly tax-regulated area at the least…