This is not tax advice. This is just a discussion of what I think I know. No warranties are given.
Masternode earnings would be a business revenue in the USA. A MN provides a service and receives a revenue for the services provided.
So for a MN, you would recognize the revenue earned when you receive the MN coins into possession. You would recognize revenue at the fair market value of the coin when you receive it. So before you exchange into BTC, you have a business revenue.
Exchanging it into BTC results in a conversion of investments. The MN coin revenue has a basis of whatever you recognized as the revenue, so it is like purchasing that coin at the revenue valuation. This would be your basis for a gain / loss going forward on any capital gains your company may report. So you might recognize $1,000 revenue, but if the coin tanked 50% when you sold it, you might also recognize a 50% short term capital gain loss. Capital losses are limited, though so be aware if you recognize a lot of revenue, then the coin tanks, you could max out the amount of possible losses while still owing on the revenue portion.
So... 1) Revenue, 2) Capital gain loss into BTC 3) Capital gain / loss into USD.
You would not be paying 50% tax. If it was all profit and all gains, you would just pay the net result of whatever the USD value was. So if you did all 3 things, all inside 1 year, and it all cashed out into profitability at $1,000, you would pay the normal tax rate on $1k which works off of normal tax bracket earnings, which is definitely not 50%. It's not double-taxation, it is just a very convoluted system to arrive at normal taxation, with pitfalls should you manage it wrong such as having a huge capital loss following a large revenue reporting.
To simplify this for tax reporting, a person could regularly and systematically turn MN profits into cash, and just switch to recognizing the cash received into the bank as revenue. If it was done regularly, I think the IRS would be okay with that (I think). Then if you want to own crypto, you just own crypto investments and hold them like normal capital investments and you manage that like you would stock investments.
Cool brother, thanks for breaking that down. I now have a good understanding on what I have to do.