Developing News

Cryptocurrency Staking Rewards are Still Taxable

On Feb. 2, the IRS conceded a lawsuit filed by Joshua and Jessica Jarrett concerning the taxability of staking rewards for cryptocurrencies. This decision was initially greeted as a victory by the crypto-community, but it appears closer to a stalemate now that the dust has settled.

The case began in 2019 when the Jarretts paid close to $3,200 in income tax on new tokens they created through staking. Believing that their tokens should only be taxed when they are sold, the Jarretts filed for a refund of the $3,200 in August 2020. The IRS originally ignored the claim, resulting in the couple taking the matter to a federal court.

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The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-07, Compensation-Stock Compensation (Topic 718) titled “Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards.”

The amendments in this update affect all nonpublic entities that issue equity-classified share-based awards and elect the practical expedient in this update.

What’s in the Update?

A nonpublic entity can now determine the current price input of equity-classified share-based awards issued to both employees and nonemployees using the reasonable application of a reasonable valuation method.

The practical expedient describes characteristics of the reasonable application of a reasonable valuation method.

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The digital economy has been redefining industry boundaries for years. The onset of COVID-19 only accelerated this trend in the manufacturing and consumer product space. More middle market companies are now attempting to sell directly to consumers online, and many are extending their internet presence beyond the large e-commerce websites.

Part of this is attributable to manufacturers adjusting to new customer preferences. The pandemic created a drastic spike in demand for consumer products. And we all saw the effects this holiday season when most were faced with shipping delays, and many were unable to obtain out-of-stock products.

These consumer product gains haven’t all gone to large corporations though.

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The Employee Retention Credit (ERC) has ended early with the signing of the Infrastructure Investment and Jobs Act into law. Previously set to expire as of December 31, 2021, the credit has retroactively ended as of September 30, 2021.

Taxpayers can still make retroactive claims for 2020 and 2021 Q1–Q3. However, no new claims may be made for 2021 Q4, unless you are a Recovery Startup Business. If a business qualifies as a Recovery Startup Business, the employee retention credit is still available for 2021 Q4.

Why Is It Ending Early?

The ERC has been a huge source of additional COVID relief funds for many taxpayers these past two years.

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