Question

Airdrop income estimated taxes

Forum|Forum|4 years ago
February 6, 2022
1 reply
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What happens if the airdrop received in January drops in value by 80% and is sold at a loss or not sold at all.

is the quarterly estimated tax due on the income amount of the airdrop when received and first payment due April 18th ?

if so where does that actual money come from if the value dropped?

That means the effective tax rate is like 70%

TurboTax Deluxe Online

H

HelenC12

@Twostates

Please read the following information and if you have additional questions, please post them in a new thread.

Recently, the IRS ruled that airdrops, along with promos and staking rewards, only become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." If you had one of these taxable transactions in the first quarter, you should pay estimated taxes, on the gain, unless you have enough withheld from your W-2 job (if you're working) to offset any taxes you need to pay on the taxable airdrop transaction at the end of the year.

Airdropped currency that's not yet usable or accessible would therefore not be taxable until the taxpayer can exercise control over it.

Cryptocurrency airdrops are (usually) free distributions of coins or tokens into multiple wallet addresses to promote and drive adoption of a new virtual currency.

Please see the TurboTax FAQ How do I report a crypto airdrop? Under Step 1, you would convert the value of your airdrops, promos, and rewards to US dollars (USD) if the issuer or exchange hasn't already done this for you.

You can use an online cryptocurrency converter, such as CoinMarketCap, to determine the USD value based on either the historical close price or the average price (doesn't matter which one you choose, as long as you stay consistent throughout your calculations.) Be sure to keep notes of your calculations with your tax records in case it's ever questioned.

[Edited 02/6/22|1:19pm PST]

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T

Twostates Author

Thanks. This answers only part of it. The real question here is how can one be responsible for tax on income which is not actually available in USD.

you cannot pay taxes with Erc 20 tokens

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HelenC12

In my answer, in the TurboTax FAQ How do I report a crypto airdrop, under Step 1, you would convert the value of your airdrops, promos, and rewards to US dollars (USD) if the issuer or exchange hasn't already done this for you.

You can use an online cryptocurrency converter, such as CoinMarketCap, to determine the USD value based on either the historical close price or the average price (doesn't matter which one you choose, as long as you stay consistent throughout your calculations.) Be sure to keep notes of your calculations with your tax records in case it's ever questioned.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"