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.
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.
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 subject to KYC upon signup, and thus, Midas does not have the proper information to report such earnings for US users.
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.
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).
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”.
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.
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.
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.”
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.”
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.
Simple transfers are not taxable, however, anything you’re transferring that is the result of earnings/swaps on Midas is taxable.
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.
In the US, you may add swap fees toward the cost basis of the crypto you’re swapping.
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.