I am used to getting 1099’s for true realized gains from initial investments. Was the 1099’s issued only for the cash back portion? Or was it for just normal staking? And how do they determine the dollar value as StormX continued to declined after the staking or cash back rewards? I get 2% cash back on my credit cards and they do not send me 1099 for those cash rewards. I love StormX, but I was trying to figure out why the 1099 was necessary if you just restake, especially since I am down 80% from the initial price I paid. I never withdrew a single StormX from the platform. So I would imagine it is up to me once I liquidate to show my initial price paid verses the total net proceeds. I know a bank would not send me a 1099 on interest earnings my principal was down 80%, so I am just trying to wrap my head around this. I am not bashing since I am long term HODLER, hence I believe in the long term potential. I did not want to have to dance with this every year. It seems if you never withdraw then you really have no gain yet. It is sitting like a 401K. And so once you withdraw from platform perhaps then a 1099 is issued. Any thoughts?
I cannot be certain on this, but my thoughts for why they issue 1099’s are:
StormX the corporation is taking an expense for the issuance of staking rewards and also cashback rewards. For this reason they likely have to issue 1099’s to the recipients of these payments over a certain amount in accordance with US tax laws for corporations. Since they receive the cashback for the purchases, they also offset this revenue due to payment to the users as an expense. I don’t know why it is different for credit card rewards versus crypto cash back, but I would suspect that StormX is being conservative by sending the 1099’s since the treatment by US tax law of crypto cashback might not have sufficient guidance to be able to clearly say that the cash back is an adjustment of price and thus not income. This is probably one of the down sides of being early in the crypto space and due to a lack of clearly regulation/tax guidance.
StormX is not a finance advice firm or accounting firm so they likely cannot tell users how to respond to their 1099’s and whether they should or should not claim their cash back as income. That will be up to each users appetite for risk in the filing of their tax returns. Some users might not claim it as income and will have to justify this decision to the IRS on their own while other users might claim it as income in order to avoid any issues (justified or not) with the IRS. The most conservative interpretation would be to claim it as income and this would like avoid any IRS scrutiny but each individual has to make that choice on their own because there really is a lack of clarity on the matter. CC cash back has case law and specific tax guidance, but crypto cash back does not.
With regard to a 1099 for interest earnings on an asset that is valued at 80% less than its purchase price, this does occur, but maybe not for banks. If a stock issues dividends you’re responsible for the tax payment on those dividends regardless if that underlying asset (stock price) has gone up or down. Again, this isn’t the cleanest example because we’re discussing stocks versus a crypto token and dividends versus staking rewards, so clear and specific tax guidance from the IRS would be best, but again, there is likely to be less issue with the IRS if you stick to the most conservative interpretation of tax law. With the most conservative interpretation, unfortunately, being the one where you pay the most amount of taxes to the IRS.
Thanks for taking the time for your thoughts… I like the stock dividend comparison.