Ethereum Network always looks for a more secure, sustainable, and saleable system. Therefore, the proof of your work (POW) method changes to the Proof of your Stake (POS) method. As a result, the Ethereum society is using this at a great scale.
In this content, we will discuss the implication of crypto tax tips and staking reward earning under ETH2. It is vital to know that, IRS does not have any guidance for crypto tax or staking crypto tax.
So, we can use the generic guidance (Rev. Rule 24-2019, IRS Notice 21-2014, and FAQs) for staking tax implications. Finally, we are representing some examples for you. Hopefully, it would help you to understand the system properly. So, before you look for “Keep A Bit,” let’s dive in the content!
Crypto Tax Method of Converting to ETH2 from ETH
ETH2 system starts on 1st December 2020. Therefore, it is simple to don’t have a clear idea about it. So, this content would help get a vivid idea about the transition system of crypto tax. But on top of all these things, a keep a bit review can get you more understanding on such cryptocurrency wallet.
You will get some case studies in this content, and you need to understand the case study. Then, compare your situation with the case study. Finally, you will get the best solution for your Crypto Tax.
Case Study 1: Considering ETH2 and ETH as Two Different Currencies
When we convert one currency to another currency, we pay tax. Therefore, if ETH2 and ETH behave in two different currencies, it is not supposed to be profitable.
But if we can treat them as two separate coins, no tax needs to pay for the transaction. Moreover, when we have the freedom to convert from one coin to another or vice-versa, it increases the crypto’s liquidity.
At the same time, the staking of ETH2 will not impact ETH trading and remain unlocked. Finally, this Coin base allows us to trade among ETH, ETH2, and other currencies supported by crypto.
Case Study 2: Considering ETH2 as an Upgrade Version of ETH
We know that upgrade of anything is not a taxable event. Therefore, ETH coin will upgrade to one new token as ETH2 would not need to pay any tax. Moreover, the holding time will also swap to the new upgraded token ETH2.
If you think you will not get the rewards for the holding period, you are wrong. This tax less coin swap would be profitable if you know the system and use the method correctly.
Finally, you can consider ETH2 as a new property of you having a previous coin’s previous profit. Hopefully, customers will trade more on crypto and invest as a stake currency like a business without staking tax.
Example Transaction of ETH Staking
Suppose you receive 2 ETH for staking gift on 15th January 2021. Then, in the time of gaining the reward, you can report as $500. At the same time, you can skip the reporting because it is not gaining any profit.
When it increases, and you sell it, then it would become taxable. For example, if you sell the ETH at $600, you need to pay tax for $100($600-$500) as a gain tax. Before clear instruction from the authority, you can choose your way and practice it for your crypto.