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Are cryptocurrency cashback rewards taxable? — TradingView News
What are cryptocurrency cashback rewards?
Cashback rewards programs are popular mechanisms used by companies to reward consumer activity and loyalty, and the growth and awareness around cryptocurrencies make cryptocurrency rewards an excellent way to target savvy consumers interested in digital currencies.
Most users are familiar with successful cashback or rewards programs that offer consumers coupons or airline miles to exchange for discounts, as well as fiat currency as cashback. Users typically sign up to use a credit or debit card and, depending on their business activities, are reimbursed in fiat currency or points that have a monetary value and can be used within certain transactions.
There are also cashback sites where users can register their cards, and any purchase from groceries to electronics to insurance and vacations through such sites will help users accumulate cashback rewards.
Cryptocurrency cashback programs have been targeted at the growing niche of savvy digital natives who are familiar with cryptocurrencies and feel comfortable earning any rewards in their favorite digital currencies.
Because many of these programs are new, they generally tend to offer generous rewards for their users over traditional cash-back arrangements to increase adoption. Users should research programs that offer sign-on bonuses and referral bonuses to best maximize earnings from participating in such programs.
Popular cryptocurrency cashback offers
From traditional, large-scale companies to new fintech business models and e-commerce sites, a growing segment is geared toward promoting cryptocurrency prize money.
Cashback programs are typically structured around various business models, such as offering flat-rate rewards based on minimum requirements or percentage-based rewards, such as 3% for meals and 1% for all other purchases. Some programs provide tiered rewards based on spending or account positions. Additionally, some require a subscription, which requires a monthly fee or deposit to access.
Venmo, a PayPal company, offers credit cards with a cryptocurrency cashback service where users can set their own cashback rewards to use to purchase cryptocurrencies of their choice.
Paystand, a company focused on business-to-business payments, has also made inroads by offering business spending cards that reward users via cryptocurrencies.
Crypto.com has a long-standing program with built-in rewards based on user activity and holdings on its centralized exchange. Other known card offers with cashback function include those from Gemini, Coinbase and Wirex and, depending on their business model, these cards are offered as debit or credit cards.
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Club Swan offers a lifestyle and payments platform where membership includes concierge services and rewards for purchases made using their cards. Users should check which providers are willing to offer these programs within their jurisdictions, as some of them are limited to certain geographic areas.
Users also have access to sites and apps that run cryptocurrency cashback models. StormX and CoinCorner are examples of sites or apps that allow users to shop at various retailers, from lifestyle, fitness and home goods to travel and flights, and reward them with cashback via cryptocurrencies.
Users must pay attention to some fees and minimum requirements to participate in cashback programs; they should make these choices after conducting due diligence and comparing options to ensure the outcomes are economical and prudent for their finances.
Unusual cryptocurrency reward programs
It’s also worth considering some unusual niche rewards programs that encourage social, gaming or fitness activities and reward users with cryptocurrencies accordingly.
Move-to-earn programs encourage users to earn cryptocurrency for activities such as walking, running, and other similar fitness activities. Examples include StepN and Sweatcoin, where users, based on registration options, have an app that tracks users’ activities and rewards them with their native tokens.
Playing for Money (P2E) is another popular segment with games like Axie Infinity, and its core premise continues to endure. For users who enjoy playing online or mobile games, P2E offers the opportunity to be rewarded for their hobbies and interests via cryptocurrency rewards.
Tax Implications of Cryptocurrency Cashback Rewards
Cryptocurrency cashback triggers a number of financial and tax considerations for users.
Cryptocurrency cash rewards open up new opportunities for users; However, there are tax consequences to receiving cryptocurrency rewards and users should ensure they follow the tax reporting laws of their jurisdictions.
Cryptocurrency rewards add a layer of reporting and tax compliance for users, and depending on the complexity of their arrangements, they may need professional financing and tax help.
Users should review the following key areas:
Earnings
Cryptocurrency received as a reward can increase in value over time, so when users decide to sell it for fiat currency or exchange it for another cryptocurrency, they could incur capital gains tax. The tax due can be a complex calculation and depends on various factors, such as the jurisdiction’s tax laws and the length of time withheld.
Volatility of cryptocurrencies
When users receive cryptocurrency cashback rewards, they are generally considered income under most tax laws. The main risk concerns the volatility of the cryptocurrency: the value of the reward is based on the market value at the time of receipt. If the value decreases over time, users are still subject to taxes based on the value of the initial receipt.
Considerations before opting for cryptocurrency cashback rewards
While cryptocurrency cashback rewards can be tempting for users, they need to exercise caution and consider the pros and cons before opting for such rewards.
There is greater compliance and reporting overhead on their individual tax affairs, so they must weigh the benefits against these costs.
Tax implications
Tax laws in jurisdictions can be quite complex. The Internal Revenue Service in the United States may not provide direct guidance on cryptocurrency cashback rewards, but there is substantial guidance on the general treatment of cryptocurrencies. Such compensation is considered taxable income, focusing on the fair market value on the day of receipt and capital gain requirements at the time of disposition.
Users would benefit from accurate record keeping to track rewards and cashback transactions, which would help them with accurate reporting and tax compliance. Since cryptocurrency taxation is a rapidly evolving field, users should stay updated on any changes to tax guidelines or laws and appropriately consult with financial or tax advisors based on their specific circumstances.
Conversion to fiat and off-ramp
Depending on the options available within the rewards program, it can sometimes be expensive for users to convert their cryptocurrency earnings into fiat currencies.
Wallet security
Users who store cryptocurrency rewards in their private wallets must follow appropriate operational security measures to protect themselves from hacker attacks, social engineering or malware.