Taxes on Passively Generated Income on Midas and Gains/Losses from Crypto Swaps
As the Internal Revenue Service (IRS) treats cryptocurrency as property (rather than currency), taxable reporting on the sale and/or swap of cryptocurrencies falls in line with that of traditional stocks/equities.
For all intents and purposes, swapping and selling are the same from a reportable taxable event perspective. A swap can be considered the same as the simultaneous sale of a cryptocurrency and purchase of a new cryptocurrency.
In the examples below, BTC is used as the example for non-stable cryptocurrency, however, the same rules apply to any cryptocurrency.
The answers below are intended only for US taxpayers and are not meant to be comprehensive (nor is it meant to represent financial advice).
The questions and answers serve as a basic intro for those unfamiliar with the general tax treatment of cryptocurrencies.

Are my daily/weekly earnings on Midas taxable?

Yes. Per the IRS, passively-generated income from platforms such as Midas should be treated as “Other Income” (Line 21 on Form 1040) for tax purposes for US tax-paying citizens.

Will Midas send me a 1099-MISC form?

No. As Midas is not a company registered in the US, it is not required to prepare 1099-MISC forms for the IRS. Further, Midas users currently are not subject to KYC upon signup, and thus, Midas does not have the proper information to report such earnings for US users.

If Midas does not send me a 1099-MISC form, am I still responsible for paying taxes on earnings and swaps that occur on the Midas platform?

Yes. Even though Midas does not prepare/submit 1099-MISC forms to the IRS, users are responsible for reporting income from daily/weekly earnings as well as self-reporting capital gains/losses arising from swaps within the Midas platform.

What taxes do I owe on my daily/weekly earnings?

You are responsible for reporting the dollar equivalent of all earnings as “Other Income” when completing your taxes (i.e., when preparing your 2021 tax return, all daily/weekly earnings for 2021 should be included).
For example, if you earned 1 BTC worth of rewards in 2021, and if BTC’s price was stable at $40,000 for the whole year (hypothetical scenario), this means you earned the equivalent of $40,000 worth of property (the IRS considers crypto as property and NOT currency). You would have to report $40,000 of “Other Income” on your tax form which would thus be subject to taxes.
In the real world, however, BTC’s price fluctuates every second of every day. Thus, it is up to each taxpayer to calculate the dollar value of the BTC earned each day/week based on the prevailing market price at the time of reward. Midas provides a CSV file to help you keep track of your in-kind earnings (including the exact time of payment), however, you (or your tax preparer) would have to determine the dollar value of each reward at the time each reward was paid out. Tax firms specializing in crypto have tools that determine this by plugging in the data from the Midas CSV file into their proprietary software to sync up prices at any given time. Midas users can find the link to print the CSV file within each “card”.

Am I responsible for paying taxes on crypto that I swap within Midas?

Yes. Any time you swap from one crypto to another, this is considered a reportable event. Swaps of crypto will either yield capital gains or losses. Determining whether you’ve earned capital gains or losses depends on your cost basis of the coin you’re swapping (i.e., what price did you buy it or earn it at?) and the current market price (i.e., what price did you swap it for?).
If you’re swapping BTC you’ve earned on Midas: Each time you’re paid a reward, you must determine the cost basis for that amount of coin.
For example, if on day one at Midas, you’re paid 0.001 BTC and that’s equal to $40 at that time (based on a market value of $40,000 per BTC), this is your cost basis for your first 0.001 of BTC. If you were to swap this 0.001 BTC one week later, and it was worth $50 (as the price of BTC rose to $50,000 per coin), this means you’ve gained $10 in value. You are responsible for reporting this $10 as a capital gain if you choose to swap from BTC to any other crypto (including stablecoins).
Note that in the example above, a profit of $10 was realized upon swap. If you were to swap the 0.001 BTC for another coin, you are responsible for determining the cost basis of the coin to which you swapped. Thus, if you bought $50 worth of ETH with that 0.001 BTC, $50 becomes the new cost basis for your ETH.
If you’re swapping BTC you’ve transferred into Midas: You must determine what your cost basis was for that BTC. This will require that you have a detailed record of what you originally paid to purchase that BTC.
For example, if you bought 1 BTC for $5,000 in 2020, and are swapping 1 BTC on Midas to any other crypto (when BTC’s current market value is $40,000), you must recognize a $35,000 capital gain.
In the US, capital gains and losses are classified as either “short term” or “long term.” Crypto held for one year or longer is subject to “long term” capital gains taxes when swapped (either 0%, 15%, or 20%; these thresholds are dependent on your income). Anything held for less than one year before swapping is subject to “short term” capital gains which are taxed at the same rate as your ordinary income (up to 37% in 2021, depending on your tax bracket). Are my affiliate rewards taxable? Yes, just like your daily earnings, these rewards should be treated as “Other Income.” As all rewards are paid in USDT (closely pegged to the USD), this would be rather easy to calculate over the course of a year. If you’ve earned 1000 USDT over the course of a year, you must include/report this as $1,000 of “Other Income.”

Are my affiliate rewards taxable?

Yes, just like your daily earnings, these rewards should be treated as “Other Income.” As all rewards are paid in USDT (closely pegged to the USD), this would be rather easy to calculate over the course of a year. If you’ve earned 1000 USDT over the course of a year, you must include/report this as $1,000 of “Other Income.”

Do I owe taxes when I swap from stablecoins to another crypto?

While swaps from any cryptocurrency (including stablecoins) to another are considered taxable events, stablecoins are typically pegged to the USD, and thus, do not materially fluctuate in value (sometimes only fractions of a penny). Thus, users typically have no capital gains to report when swapping from a stablecoin (like USDC) to BTC.

Do I owe taxes on crypto that I transfer from one wallet to another?

Simple transfers are not taxable, however, anything you’re transferring that is the result of earnings/swaps on Midas is taxable.

What about losses on crypto when I’m swapping?

US taxpayers may offset capital gains associated with swaps with capital losses associated with swaps, not to exceed a net cumulative loss of $3,000 in a given year.
For example, if you have $100,000 in gains following the swap of BTC and $150,000 in losses from swapping ETH, you cannot report $50,000 in net capital losses (line 7, Schedule D) for the year. You are capped at a $3,000 loss per year. However, you may carry over the $47,000 in losses to future years (indefinitely until the $47,000 is exhausted). If in 2022, you have $100,000 in total net capital gains, you may offset these gains by the full $47,000 in losses from 2021, and thus, your net capital gain for 2022 would be $53,000 ($100,000 less $47,000 in “carryover” losses from 2021).

Can I factor in the fees I pay for swaps toward my taxes?

In the US, you may add swap fees toward the cost basis of the crypto you’re swapping.
For example, if you’re swapping $50 of BTC, which has earned you $10 in gains (cost basis of $40), and you pay $5 in swap fees, you owe taxes on $5 in capital gains ($50 market price less $40 cost less $5 in swap fees).
As noted, this FAQ is not intended to be exhaustive nor a substitute for professional tax guidance. For further clarity on guidance on any of the above questions, you should only seek advice from an individual or firm specializing in cryptocurrency taxes in the US, with all necessary certifications and qualifications.
Helpful Resources/Links:
  • IRS: “Frequency Asked Questions on Virtual Currency Transactions”
  • TurboTax: “Your Cryptocurrency Tax Guide”
  • NextAdvisor (in Partnership with TIME): “Six Questions You Might Want to Ask Your Tax Pro”
  • NextAdvisor (in Partnership with TIME): “Here’s How to Report Cryptocurrency to the IRS in 2022”
  • Forbes: “Quick Guide to Filing Your 2021 Cryptocurrency & NFT Taxes”
Last modified 3mo ago