Hi Frens – Naga & Chiron here with some thoughts around the US tax implications of OHM and Klima from a staking and capital gains perspective. We are very excited about these two protocols and are actively working with the Olympus DAO protocol on various matters.
Y'all need to setup shop. So many folks are going to need crypto tax help and near no one currently provides.
Thank you for this post and for the "TradFi" comparisons - very helpful.
Question on taxable events upon recipient. Example: Staking $DOT and getting "paid" your yield in $DOT daily and let's say $DOT prices goes to $0.01 the following week, never recovers.
I owe tax on the daily payments of $DOT yield as if I was paid a dividend? And I owe at whatever the $DOT to USD rate is at that time? Even if that assent later goes to zero?
My contention is I was not paid in USD, as I would be with a dividend.
Yes you would have report taxable income from the DOT rewards. If DOT goes down in value you can sell it and have a capital loss. But capital loss doesn’t offset income so it’s a good thing crypto never goes down in value.
Hi Juan - Thank you for your comment! On what platform are you staking $DOT? Want to make sure I understand the full transaction flow. That being said, I agree with what Anon said in that the staking and cap gain/loss are different transactions. I would think that any of the coin tracking software packages (e.g. Zenledger, TokenTax, etc) would be able to track that through an API or .CSV download. It would not be a dividend so qualified/unqualified would not apply. I would suspect that it would simply be reported on the "other income" line. Hope that helps.
Easily! I ran a few grid bots earlier in the year so way over that number myself hence I have been trying to find an unlimited option that won't be too expensive and will meet my other needs.
Can’t believe this post is free. Perfect explanation and level of detail.
I’m a CPA too—although tax is not my focus.
Staking Sushi and Spell. Thinking of treating these as purely capital gain/loss from IRS prospective because there is no realizable event just holding xSushi and sSpell. The rewards don’t passively post to your wallet on a periodic basis—only when you swap back to original token—which is when I plan on having a taxable event.
Thank you for your comments! Always good to see another CPA. TBH I have not looked into Sushi and Spell to any great extent, but I will take a look at them and get back to all of you.
A consideration. When a stock splits, every holder of that stock gets double the number of stocks at half the value (in a 2 for 1 split obv). This is not the case with OHM rebases. Only people who have staked within the protocol get the rebases. Clearly there are unstaked OHM holders who do not get the rebases, LPs for example.
It is the sOHM that undergoes the split, and every sOHM holder gets a similar split. Because of this, if you are going to go the route of claiming rebases as stock splits, I think it is vitally important to claim the OHM-sOHM and sOHM-OHM swaps as taxable events.
With regards to staking and unsticking, I feel that is a grey area and depends on how long people wait prior to staking. Given that it is exchanged 1:1, I think that not claiming those "swaps" as taxable is very low risk. My approach is to stake as soon as OHM shows up in my wallet so there is almost no slippage between the two. If you're going to stake, it makes no sense to sit on OHM for more than you have to.
Interested in paid subscription! Break down of thought process is great
Advice on software to track all this would be great. If it doesn't exist yet.. crypto tracking starting to cause enough pain that I will write some scripts to process chain data for quicken import or something
Paid subscriptions will be rolled out for sure. Really trying to show the value add before I start charging. There are a number of coin tracking software packages out there such as Zenledger, TokenTax, and Cointracking. I am looking at all of them - not only for my own use, but also in case I start serving clients in the crypto space. Unfortunately, they do not really have demos available so it is a bit hard to look under the hood. Ideally, I am looking for a package that could support and scale from individual use, client use, and even for use by a crypto hedge fund which is another venture I am looking into.
RE tax SaaS, what I ended up doing is subscribe to multiple services. Some of them have "trials" but usefulness varies. Having many years of Tx highlights the quirks and differences. Each platform I've tried has its flaws but the platforms and crypto are always changing...
I suppose what I'm looking for *first* is accurate and auditable accounting that I own completely. Ironic given blockchain = immutable digital ledger.
Interesting. I'm thinking that something like that could be done and I'm sure we have Jungle residents that could do it. Would need to be able to develop the UI, work with the exchange APIs and CSV imports, etc.
Thank you so much for your comments! You raise some great questions and there is a definite tension between all of these approaches. I think that would make for a great article or two for sure.
Is there good software that can help with crypto tax and scale with the complexity? Ideally not SaaS
Opportunity for Jungle to build?
Currently using various crypto tax SaaS. Each has tradeoffs and I spend a lot of time understanding differences in behavior and doing manual reconciliation. This is actually good (forces understanding) but I am looking for a place to keep my "official" records. So far, none present data or export in a way that makes me happy.
Have researched QuickBooks, Quicken, TaxAct, GnuCash.
Pan raises a number of a good points below. Let's compare notes as I am sure the Jungle has people that can handle the coding. Like Pan says, I have not been completely happy with what I have looked into so far either. There are trade offs to all of them. If you get the coin input side right, then they may not work with your tax software easily or your accountant's software easily.
Have you looked into cointracking.info? (not to be confused with Cointracker)
It allows quite a lot of customization regarding individual transactions and also allows to play around with different scenarios regarding FIFO, HIFO, etc.
I've compared a lot of these platforms for my personal use and though many have a nice looking interface, I have to tweak a lot of transactions because there's context information the system can't know. And the ability to filter the table is also very handy.
It looks not as sleek and modern, but it allows for a lot of tweaking, analysis, checks and provides some nice diagrams, as well as overviews of gain/loss, total fees spent, etc.
That is the Company that I keep coming back to as well. I'd want my personal and client info on the same platform to minimize the software learning curve. I also like the fact that they have worked with institutional level clients. I plan on having some detailed discussions with them to find out more.
I've been trying out cointracking and here are initial thoughts on features that either I haven't figured out or are missing
* Addresses associated with transaction (source, destination, contract, etc) and automated matching and categorization of transactions based on that. At minimum, could say "CEX XYZ" to "Ledger Wallet ABC"
* Ability to automate rolling transaction fees into trade or send/receive, adjusting cost basis rather than taking gain/loss.
* Automation with DeFi, takes a lot of editing
* Per transaction basis & gains/losses calculation and reporting. Maybe this is in the "Roll forward report"?
* Ability to import from Arbitrum and AVAX. Tried doing a custom CSV import, haven't gotten to a happy solution
This is a wonderful post, thank you for writing it, as I'd been grappling with the same. (And halfway thru creating a Dune dashboard to calculate it for me).
I was wondering though - in your view, does wrapping your sOHM into wsOHM completely obviate the dividend income issue? Because you are not longer rebasing and the price is changing instead?
Thank you! I'm glad that you liked it. I've just started reading about how wsOHM would work and it is a bit intriguing that way. My initial reaction is that we get to the same place in terms of capital gain/loss treatment, but the impact of the rebasing is buried into the wsOHM itself instead of getting additional sOHM three times a day. I would still track purchases in detail if you're intending to invest in multiple tranches. Hope that helps and that I answered your question.
Y'all need to setup shop. So many folks are going to need crypto tax help and near no one currently provides.
Thank you for this post and for the "TradFi" comparisons - very helpful.
Question on taxable events upon recipient. Example: Staking $DOT and getting "paid" your yield in $DOT daily and let's say $DOT prices goes to $0.01 the following week, never recovers.
I owe tax on the daily payments of $DOT yield as if I was paid a dividend? And I owe at whatever the $DOT to USD rate is at that time? Even if that assent later goes to zero?
My contention is I was not paid in USD, as I would be with a dividend.
Yes you would have report taxable income from the DOT rewards. If DOT goes down in value you can sell it and have a capital loss. But capital loss doesn’t offset income so it’s a good thing crypto never goes down in value.
I get it but this is a sh*t show in terms of management. The coin price moves every second and the compounding happens every day.
You'd need a timestamp of every payment
Choose from a long list of exchanges to use as a price base
Know what the qualified v unqualified split of your total is
Do math
Pay the man
Hope they accept your thesis and math
Now do this on 10 coins for a year. LOL.
Hi Juan - Thank you for your comment! On what platform are you staking $DOT? Want to make sure I understand the full transaction flow. That being said, I agree with what Anon said in that the staking and cap gain/loss are different transactions. I would think that any of the coin tracking software packages (e.g. Zenledger, TokenTax, etc) would be able to track that through an API or .CSV download. It would not be a dividend so qualified/unqualified would not apply. I would suspect that it would simply be reported on the "other income" line. Hope that helps.
I got rid of most daily paid yields last year.
Crypto tax software usually charges per transaction (so lame) 365 transactions could easily push you over
Easily! I ran a few grid bots earlier in the year so way over that number myself hence I have been trying to find an unlimited option that won't be too expensive and will meet my other needs.
Can’t believe this post is free. Perfect explanation and level of detail.
I’m a CPA too—although tax is not my focus.
Staking Sushi and Spell. Thinking of treating these as purely capital gain/loss from IRS prospective because there is no realizable event just holding xSushi and sSpell. The rewards don’t passively post to your wallet on a periodic basis—only when you swap back to original token—which is when I plan on having a taxable event.
Sound reasonable or am I ngmi?
My plan (not a professional)
SUSHI->xSUSHI cap gain/loss
xSUSHI->SUSHI cap gain/loss
Is that what you're thinking?
Debating whether SUSHI->xSUSHI is taxable like trade or untaxed like contribution of asset to an LLC
I think of xSushi as more of a note receivable or bond where you can redeem it at any time for Sushi.
Contribution of asset to LLC is an interesting way to look at it too.
So xSushi -> Sushi definitely cap gain/loss
Could argue using this logic that no cap gain/loss for Sushi -> xSushi
BUT
If I had to predict the future:
Any swap between any tokens would generate a capital gain/loss taxable event
I'll take a look and give you my thoughts
I'll take a look and give you my thoughts
Thank you for your comments! Always good to see another CPA. TBH I have not looked into Sushi and Spell to any great extent, but I will take a look at them and get back to all of you.
A consideration. When a stock splits, every holder of that stock gets double the number of stocks at half the value (in a 2 for 1 split obv). This is not the case with OHM rebases. Only people who have staked within the protocol get the rebases. Clearly there are unstaked OHM holders who do not get the rebases, LPs for example.
It is the sOHM that undergoes the split, and every sOHM holder gets a similar split. Because of this, if you are going to go the route of claiming rebases as stock splits, I think it is vitally important to claim the OHM-sOHM and sOHM-OHM swaps as taxable events.
With regards to staking and unsticking, I feel that is a grey area and depends on how long people wait prior to staking. Given that it is exchanged 1:1, I think that not claiming those "swaps" as taxable is very low risk. My approach is to stake as soon as OHM shows up in my wallet so there is almost no slippage between the two. If you're going to stake, it makes no sense to sit on OHM for more than you have to.
Interested in paid subscription! Break down of thought process is great
Advice on software to track all this would be great. If it doesn't exist yet.. crypto tracking starting to cause enough pain that I will write some scripts to process chain data for quicken import or something
Paid subscriptions will be rolled out for sure. Really trying to show the value add before I start charging. There are a number of coin tracking software packages out there such as Zenledger, TokenTax, and Cointracking. I am looking at all of them - not only for my own use, but also in case I start serving clients in the crypto space. Unfortunately, they do not really have demos available so it is a bit hard to look under the hood. Ideally, I am looking for a package that could support and scale from individual use, client use, and even for use by a crypto hedge fund which is another venture I am looking into.
All that sounds great.
RE tax SaaS, what I ended up doing is subscribe to multiple services. Some of them have "trials" but usefulness varies. Having many years of Tx highlights the quirks and differences. Each platform I've tried has its flaws but the platforms and crypto are always changing...
I suppose what I'm looking for *first* is accurate and auditable accounting that I own completely. Ironic given blockchain = immutable digital ledger.
Interesting. I'm thinking that something like that could be done and I'm sure we have Jungle residents that could do it. Would need to be able to develop the UI, work with the exchange APIs and CSV imports, etc.
Awesome stuff! Def worth a paid sub, ASAP.
I'd appreciate a few starter posts to get the noobs like me more oriented.
For example--I want to DCA BTC/ETH (easy enough) but am buried in analysis paralysis . . .
Following BTB--I should avoid exchanges, and following butane's ideas on disc, go as private as possible.
But the conflict between taxes and privacy lead me to questions that confuse me, like:
--Won't the perks of non-KYC get canceled out when I would report gains, or even answer yes to "Do you own Crypto?"
--How practical is it even to DCA every month if I have to follow the max-privacy additional steps?
--How does putting coins into an IRA affect my degree of ownership of them?
What would you think is a simple way to get my tax X and Os right on DCAing coins, while still maintaining max privacy?
Staking and other degen shenanigans can come later. :)
Thanks, and again awesome content!
Thank you so much for your comments! You raise some great questions and there is a definite tension between all of these approaches. I think that would make for a great article or two for sure.
Is there good software that can help with crypto tax and scale with the complexity? Ideally not SaaS
Opportunity for Jungle to build?
Currently using various crypto tax SaaS. Each has tradeoffs and I spend a lot of time understanding differences in behavior and doing manual reconciliation. This is actually good (forces understanding) but I am looking for a place to keep my "official" records. So far, none present data or export in a way that makes me happy.
Have researched QuickBooks, Quicken, TaxAct, GnuCash.
Pan raises a number of a good points below. Let's compare notes as I am sure the Jungle has people that can handle the coding. Like Pan says, I have not been completely happy with what I have looked into so far either. There are trade offs to all of them. If you get the coin input side right, then they may not work with your tax software easily or your accountant's software easily.
Have you looked into cointracking.info? (not to be confused with Cointracker)
It allows quite a lot of customization regarding individual transactions and also allows to play around with different scenarios regarding FIFO, HIFO, etc.
I've compared a lot of these platforms for my personal use and though many have a nice looking interface, I have to tweak a lot of transactions because there's context information the system can't know. And the ability to filter the table is also very handy.
That's what made me end up with cointracking.info
It looks not as sleek and modern, but it allows for a lot of tweaking, analysis, checks and provides some nice diagrams, as well as overviews of gain/loss, total fees spent, etc.
That is the Company that I keep coming back to as well. I'd want my personal and client info on the same platform to minimize the software learning curve. I also like the fact that they have worked with institutional level clients. I plan on having some detailed discussions with them to find out more.
Thanks, will check it out! I signed up for 5 different ones and didn't make it to cointracking.info
I've been trying out cointracking and here are initial thoughts on features that either I haven't figured out or are missing
* Addresses associated with transaction (source, destination, contract, etc) and automated matching and categorization of transactions based on that. At minimum, could say "CEX XYZ" to "Ledger Wallet ABC"
* Ability to automate rolling transaction fees into trade or send/receive, adjusting cost basis rather than taking gain/loss.
* Automation with DeFi, takes a lot of editing
* Per transaction basis & gains/losses calculation and reporting. Maybe this is in the "Roll forward report"?
* Ability to import from Arbitrum and AVAX. Tried doing a custom CSV import, haven't gotten to a happy solution
This is a wonderful post, thank you for writing it, as I'd been grappling with the same. (And halfway thru creating a Dune dashboard to calculate it for me).
I was wondering though - in your view, does wrapping your sOHM into wsOHM completely obviate the dividend income issue? Because you are not longer rebasing and the price is changing instead?
Thank you! I'm glad that you liked it. I've just started reading about how wsOHM would work and it is a bit intriguing that way. My initial reaction is that we get to the same place in terms of capital gain/loss treatment, but the impact of the rebasing is buried into the wsOHM itself instead of getting additional sOHM three times a day. I would still track purchases in detail if you're intending to invest in multiple tranches. Hope that helps and that I answered your question.