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A Complete Guide to DeFi Taxes: Everything You Should Know

2020 was revolutionary for DeFi markets, and investors flooded the young industry with over $7billion from a mere $1.2 billion. As the market cap and number of transactions surged, regulators came up with responsive ways to tax cryptocurrency income. 

Initially, taxes were a foreign concept in crypto realms, but the IRS made definitive tax rules for blockchain transactions. Most digital currency taxation policies are based on cryptocurrencies, but regulation is spilling over to the DeFi markets.

Most crypto users are ignorant of digital currency tax laws, but the IRS will not let you plead ignorance. The federal tax agency is decisively cracking down on crypto tax compliance, and this article will help you gain some valuable insights.

Reading on will help you keep compliant with DeFi taxation requirements. Even more importantly, it will help you navigate DeFi, so you trigger as much tax deductibility as allowed in novel legal confines. 

Crypto Taxes 101

The IRS categorizes digital tokens as properties and not currencies. Bitcoins, for example, are capital assets that can attract profits and losses from transactions.

Reporting your crypto taxes gets harder with the increasing number of blockchain transactions per financial year. The IRS adopted and has never changed its use of first-in, first-out accounting, which means you should determine your net gains/losses on crypto assets.

Profits are categorized as long-term or short-term capital gains. Losses on cryptocurrencies are considered deductible capital losses.

To prevent crypto holders from absconding cumbersome tax computing and filing, the IRS imposes the form 1099-K for all crypto exchange users posting over 200 transactions per year. This file is similar to form 1099-B that stockbrokers use for filing capital losses/gains, but it has some unique provisions.

Introduction to DeFi Taxes

DeFi exists within cryptocurrency realms, enabling digital token users to trade, lend, and borrow via low-cost automation that rules out third-party financial services. In DeFi markets, crypto owners earn interest on lending platforms, and the interest is paid in the same digital currencies.

Therefore, crypto interests increase the number of digital currencies. When you earn interests through your crypto tokens, a different taxable event occurs from profits/losses. Taxable events in DeFi markets transpire when:

  • You trade one cryptocurrency for another via cross-chain money markets, realizing either profits or losses.
  • You trade crypto tokens for fiat currencies, either realizing either profits or losses.
  • You spend digital tokens on goods and services, realizing either profits or losses.
  • You earn in cryptocurrencies, and DeFi services create numerous earning opportunities where you trade your time and skills by executing network protocols. Moreover, some CEOs and athletes prefer getting their salaries in digital tokens.

These taxable events in cryptocurrency transactions are either:

  • Capital gains.
  • Ordinary income.

Ordinary Income vs. Capital Gains Income               

Ordinary income taxes apply for normal jobs, and the IRS doesn’t classify cryptocurrency miners any differently. You must pay according to your marginal tax bracket.

Bitcoin miners and validators on Proof of Stake protocols earn digital tokens for authenticating transactions. These earnings are categorized as ordinary income, and they offer minimal tax savings.

Capital gains income manifests when you swap your digital assets for a higher monetary value than you acquired them. These income streams present significant tax benefits and holidays. For starters, long-term capital gains tax rates are diminished compared to short-term capital gains.

Moreover, you can completely offset capital gains with capital losses. However, capital gains can only offset ordinary income up to $3,000.

DeFi Taxes in Lending and Borrowing

The DeFi ecosystem offers lending opportunities like no other. Your digital currencies can earn interest on Compound, Blanancer, and Uniswap by contributing to liquidity pools or lending directly.

Some DeFi protocols take crypto loans and issue out Liquidity Pool Tokens in return. The currencies you loan out determine the number of tokens from the liquidity pool and ultimately how much interest you make.

Interests that you make on crypto lending platforms qualify as ordinary income for tax purposes. The DeFi ecosystem allows you to boost your revenues, with some platforms paying out interests every second.

The same applies to crypto borrowing platforms. You can borrow bitcoins and other digital tokens to use for business or personal use. Commercial cryptocurrency loans qualify for tax-deductible expenses. Therefore, you can claim relief on costs you incur when borrowing cryptocurrencies for commercial use. 

DeFi Taxes for Unexpected Income from Hard Forks and Token Distribution

Sometimes, blockchain networks award existing users or asset holders with free digital tokens. Such tokens are newly acquired assets with monetary value. Such a transaction is taxable, and the IRS categorizes it as regular income.

Therefore, you must report it within your appropriate tax brackets, and you won’t qualify for many deductions on these earnings. If you use such tokens profitably, file the revenue made on top separately.

Networks like Compound sometimes distribute their native tokens for free to users during initial offerings. For example, the DeFi platform distributed $100 worth of COMP. The users who enjoyed free $100-worth assets owed the IRS whatever your income rate is for that $100.

You won’t pay any more taxes if you hold the COMP, no matter how much they appreciate it. However, you will owe the day you redeem that appreciated monetary value, and you should report the net revenue as capital gains.

If the $100-worth of COMP appreciates to $300 within a year, you will owe short-term capital gains tax for $200 if you sell the COMP or redeem it for products and services. Your capital losses for the COMP are not deductible on the income tax you owe for unexpected digital income.

Cryptocurrency forks are other sources of unexpected digital income. Forks result when validators or miners in a network disagree on blockchain governance. A great example is that of Bitcoin and Bitcoin Cash. They disagreed, and the Fork was quite controversial because it created BTC tokens from scratch.

Investors of parent cryptocurrencies end up with an equal number of forked-off tokens. For example, if you had 4 BTC during the fork, you automatically got 4 BCH, and you became a member of two independent blockchains.

These unexpected incomes are also part of your taxable income, and you pay per your tax bracket. Any gains on them are taxable, and any losses on them are not tax-deductible.

DeFi Taxes in DEXs

Basic taxation rules for cryptocurrencies apply to DEXs. You do not incur taxation for transferring funds from one platform to another, so long as the accounts and funds are yours.

However, when DEXs allow cross-chain asset swaps, an element of profitability occurs. You either gain profits or losses on your initial capital assets.

Reporting DeFi Income on Your Taxes

It is your responsibility to report DEX revenue streams for tax purposes. The advantages of DeFi taxation are abundant. Report all DeFi buys and sells on the IRS Form 8949 for your capital gains filing.

Tax Advantages of DeFi

For starters, DeFi lending converts your currencies to Liquidity Pool Tokens. Your liquidity tokens remain the same, but their value increases over time. You make a capital gain when redeeming your LPTs for the original cryptocurrencies.

DeFi converts what should be your regular income into capital gains income. Consequently, you qualify for deductions if you make losses later selling the tokens.

DeFi allows you to borrow tokens with different cryptocurrencies acting as collateral in Ripple’s XRP for the long-run, but ETC is more profitable in the short-term.

Long-term capital gains offer more deductibles than short-term ones, and you shouldn’t keep selling your XRP to leverage ETH’s profitability. You can borrow ETH with XRP as the collateral if the prospective earnings are more than interest costs.

Tax Disadvantages of DeFi

Whenever you exchange a crypto asset for another, you are most likely triggering a taxable event. This makes it cumbersome to track all profits and losses made every time such DeFi transactions occur.

Tax Treatment Overview on Different Platforms

  • Uniswap

Uniswap executes the Liquidity Pool protocol for its crypto lenders. It empowers you to swap income tax liability for capital gains liability, which is deductible. UNI tokens basically cushion you from future losses on the native coin you want to lend.

  • Maker/Oasis

This DeFi service allows you to harness long-term tax deductions on capital gains. The platform allows you to trade between assets and even earn interest on other assets. They allow you to lock your ETH as collateral, and as it gathers capital gains, you can seize the short-term profitability of other blockchain networks.

  • Compound

Compound is also a Liquidity Pool platform, which converts your ETH to cETH. When the liquidity pool earns interest, the value on your cETH will move from income tax liability to capital gains revenue, deductible for losses.

  • Balancer

Balancer is another Liquidity Pool DeFi service. It’s sort of a tax-lien insurance package against future losses on crypto assets. 

Parting Shot

Ignorance cannot be your defense when you are found to be non-compliant. The DeFi markets are enormous and have the potential to overtake centralized finance in years to come. The IRS knows this fact, as do most sovereign central banks. 

Fortunately, DeFi taxes are friendly, and they offer numerous tax-saving opportunities. You stand to make tremendous capital gains and high, compounding interest rates investing in DeFi. The gains are way bigger than the tax costs. 

Enforcement over DeFi taxes will only get more aggressive, intuitive, and efficient. That’s why you need to read this article and share it with your friends. Take charge of your tax compliance, and share some of your most effective tax filing tips for DeFi transactions. 


Cryptocurrency Tax Guide – How to File and Pay Taxes on Crypto Earnings

The longest-held sentiment among crypto enthusiasts is that Bitcoin and other cryptocurrencies will one day be recognized as a medium of exchange by governments. If that were to happen, it would not only accelerate the maturation of the cryptocurrency market but also promote world-wide adoption of virtual currencies. 

Unfortunately, tax authorities, particularly Internal Revenue Service (IRS) in the United States and Australian Taxation Office (ATO), regard cryptocurrencies as assets or intangible properties and not a currency since it’s not issued by a central bank. The asset classification of cryptos means that all gains and transactions made using cryptocurrencies are subject to property taxation principles. 

How are Cryptocurrencies Taxed? 

Crypto tax_Forex Academy

To avoid landing in the bad books of the law as a cryptocurrency user/investor, it’s necessary to understand the very instances in which crypto taxation laws take effect. This way, you’ll be in a position to report income and pay the resulting tax correctly. 

For starters, tax authorities have made it mandatory for users to report all their cryptocurrency transactions no matter how negligible they seem. These transactions include the purchase, selling of, investing in, or paying for goods and services using any digital currency.

Merchants or businesses that accept payments in the form of cryptocurrencies are required by the law to report the value of the received cryptos. The value should be expressed as their fiat currency equivalent at the time the payment was received. In these cases, as a cryptocurrency user, you’ll incur capital gains, either long-term or short-term.

For the investors, taxable gains apply if the digital currency’s market value increases from the time of investment up to the time of tax filing. A taxable loss, on the other hand, applies when the fair market value is lower than the adjusted basis of the virtual currency. 

Additionally, cryptocurrency miners are subject to cryptocurrency taxation. For instance, after successfully mining Bitcoins, you ought to include the fair market value of the mined coins in your annual gross income. Wages paid in cryptocurrency are also taxed based on the fair market value on the coins on the date of receipt. 

Note that failing to comply with the tax laws can result in penalties, high interests, or even criminal prosecution. As such, it’s advisable to maintain an accurate record of all your crypto transactions. 

Special Considerations

It is important to acknowledge that in some countries, cryptocurrencies aren’t classified as property. This, however, doesn’t mean that they aren’t taxed. On the contrary, they are subjected to a different type of taxation policies. Let’s take a quick look at how various countries approach digital assets: 

  • The European Union 

A few years ago, the European Court of Justice ruled that Bitcoin can be exchanged without VAT in the European Union. Although this judgment doesn’t mean Bitcoin is recognized as a legal tender in any of the EU countries, it places Bitcoin on a level playing field with other traditional currencies.

While the VAT exemption applies to all countries in the European Union, cryptocurrency transactions are still subject to other forms of taxes, such as capital gains. For instance, in France, crypto-to-crypto transactions aren’t taxed, but when exchanged for fiat currency, the income tax law applies. Also, if a cryptocurrency is used to acquire an asset or service, VAT is applied. 

  • The United Kingdom 

In the UK, the law isn’t quite clear about cryptocurrency taxation. One thing is certain, though, all virtual currencies are treated as foreign currencies, and as such, they’re subject to tax gains and losses. The UK tax authority, Her Majesty’s Revenue, and Customs states that each crypto transaction will be judged based on its own individual facts and circumstances. So, users may be subjected to a variety of tax policies depending on how they use the crypto. 

What to Consider When Planning Your Cryptocurrency Taxes 

As far as crypto taxation is concerned, there are several measures you can take if you hope to remain on the good side of the law. These include:

  • Make use of Tax Tools 

Maintaining cryptocurrency tax compliance requires accurate record-keeping of all transactions. This may not be a big deal to casual traders and investors who engage in minimal crypto transactions. But, for active cryptocurrency traders and miners, it makes sense to invest in software programs to help you track and record the numerous transactions. Some of these tools can calculate your tax liabilities, prepare, and even file your tax returns. 

  • Donate Your Cryptos 

Donating a percentage of your crypto investment reduces your tax liability. Once you have donated your digital assets, the charitable fund sells them to an exchange for fiat cash. Consequently, you enjoy tax relief in that particular year of donation. 

  • Be Mindful of the Holding Period 

Short term gains taxes apply when you hold your cryptocurrency investment for less than a year, while long term gains taxes apply when you hold your investment for more than a year. Depending on your investment goals, these two periods can work for or against you.

Cashing out your cryptos too soon subjects you to frequent short term gain taxes that may eat into your profits. At the same time, holding your investments for too long results in accumulation of long term gain taxes, which might also take a massive chunk off your returns. 

Ideally, you should aim to strike a balance between holding for the short term and the long term. If the earned returns are enough to cover the taxes, then you may consider cashing out. If the returns aren’t enough, then consider holding your investments for a bit longer. 

  • Record Your Loss Too

Just like any other investment, the crypto market doesn’t always offer high returns all-year-round. Luckily, tax authorities are aware of this fact, which is why they allow investors to file tax losses to offset gains. So, be sure to record any losses incurred as a result of market trends.


Cryptocurrency taxation is a rather intricate affair given that the regulatory framework governing the taxation process differs significantly depending on the jurisdiction. As such, consulting a cryptocurrency tax advisor when planning for your taxation is highly recommended. It’s also a good idea to keep tabs on the taxation authority to stay updated on any change of policies or new rules. 

Forex Fundamental Analysis

Understanding The Impact Of ‘Corporate Tax’ On The Forex Price Charts


The Corporate Tax is one of the most poorly understood economic indicators when it comes to fundamental analysis of currency pairs and the broader stock market. Most economists have concluded that the Corporate Tax is among the least efficient and least defensive Tax. Although, there is an ongoing debate among economists about the efficiency of Corporate Tax collection from various companies. Beurocrats have agreed that it causes significant distortions in economic behavior.

The common person on the street believes that the Tax is directly paid by Corporations, which is not true. Owners and Managers of corporations often assume that the Tax is simply passed along to consumers—the vagueness about who actually pays the Tax accounts for its continued popularity among officials.

What is Corporate Tax?

The Federal Corporate Tax differs from the individual income tax in two ways. First, the Tax is levied on the net income and not on gross income. This means the profit of the organization is also included in the net income with permissible deductions of business costs. Second, it applies only to businesses that as registered as Corporations and not as partnerships or sole proprietorships.

The Corporate Tax is levied at different rates for different brackets of income. For example, in the U.S., 15% on taxable income under $50,000, 25% on income between $50,000 – $75,000 and rates varying from 34% to 39% on income above that. The federal government has kept the rates low for small corporates with a lower turnover as it can benefit companies to a greater extent. However, lower rates have little economic significance. More than 90% of all the Corporate Tax revenue came from 1.5% of corporations with assets higher than $10 million.

States levy further income taxes on these corporations, the rates ranging from 3 to 12 percent. One of the main reasons behind low State Corporate Tax is that the states can easily relocate out of states that impose unusually high taxes.

Effect on Capital Flow due to Corporate Tax

Today, economists are of the opinion that the burden of Corporate Tax falls entirely on the owners of capital. The latest research says that, since capital is mobile, it will flow to investments that produce the highest after-tax returns. High Corporate Tax raises the cost of capital and reduces after-tax returns in the corporate sector, thus leads to relocation of capital into Tax-exempt sectors of the economy.

When governments reduce the rates under various tax brackets, it has two major effects. Firstly it increases the supply of capital available to corporations, and secondly, it increases the rate of return on investments in the non-corporate sectors as capital becomes more plentiful there.

The major drawback of the relocation of funds due to higher tax rates is that the burden of Tax ultimately shifts to workers and employees. The workers, over time, become less productive and earn lower real wages.

The Economic Reports

The Economic Reports of Corporate Tax are announced on a yearly basis for most of the countries. However, during economic emergencies, changes to the Tax rates will be made by the Finance Ministry to stabilize the money flow into the companies. In the U.S., the Corporate Tax data is published and maintained by the Internal Revenue Service (IRS), which is the government agency responsible for the collection of taxes and enforcement of tax laws. The IRS also handles corporate, excise and estate taxes, including mutual funds and dividends. People in the U.S. refer to the IRS as the “tax man.”

Analyzing the Data

Corporate Tax plays a vital role in the long term growth of a country. Most investors pay close attention to the Corporate Tax rate of a nation as it determines the development of the Manufacturing sector and GDP as a whole. Institutional traders compare the Corporate Tax rates of different economies and invest in those countries where the Taxes are low. They feel that lower tax rates lay down the path of growth for companies, and they will also be able to pay dividends to their shareholders.

Impact on the currency

When the government reduces tax rates, companies will be able to retain their profits, and hence this will lead to reinvestment in the company. This directly leads to the expansion of the business and will be able to increase production. When the Manufacturing sector starts to perform well, investors will be prompted to invest in the economy either by purchasing shares of a company or in the currency. When large investors invest, smaller fund houses also start buying the currency, which leads to an appreciation in the currency.

Sources of information on Corporate Tax

Corporate Tax data is available on the official website of every country’s Finance department, which also provides a comprehensive analysis of the same. Here are the Corporate Tax rates of some of the major countries of the world.      

Sources to find more information on Corporate Tax 

GBP (Sterling)AUD | USD | CAD | NZDJPY

There are many arguments in favor of the removal of Corporate Tax, but this is from the perspective of industries. When we think from the government’s point of view, the Corporate Tax is said to increase the revenue of the government, which is very much needed for running the nation. Executives believe that ‘an old tax is a good tax’ holds validity even today. Any major change in the tax regime imposes new costs and complications during the transition period.

Impact of Corporate Tax rates news release on price charts

We understood in the previous section of the article, the meaning of Corporate Tax, and the role it plays in an economy. In the following section, we will see how the Corporate Tax announcement impacts the value of a currency and cause volatility in the pair. The data of this economic indicator is keenly watched by long term investors and representatives of the manufacturing sector. In the below image, we can see that the Corporate Tax rate announcement has a moderate to high impact on the currency, and in most cases, the announcement is made by the Deputy Governor.

Today we will be analyzing the Corporate Tax rate of Australia, which shall be imposed on the companies for the current financial year. It is published on the official website of the Australian Taxation Office, which gives statistics of previous data as well. The below image shows that the Base Rate was fixed at 27.5%, while for the general category, the Tax rate was fixed at 30%. There were no changes in the Tax rate as compared to the previous year. Let us see how the market reacts to this data.




EUR/AUD | Before The Announcement

We shall first look at the EUR/AUD currency pair, where the above image signifies the state of the chart before the announcement is made. What we see is that the overall trend is up, and recently, the price has been moving within a range. We should be cautious before taking any sell trades in such chart patterns, as the price is at the bottom of the range, and the major trend is up. Depending on the news data, we shall trade the currency pair.

EUR/AUD | After The Announcement

After the Corporate Tax announcement is made, market crashes below, and we witness selling a fair amount of pressure, which takes the price lower, thereby strengthening the Australian dollar. One of the reasons behind the sudden downfall is that the Corporate Tax rates were maintained at the same level as before, which is said to be good the economy (due to overhead costs of changing rates). At this point, we cannot immediately go ”short” in the market as the price is the key ”support” level. Therefore, we should wait for the price to break the ”support” and then take a ”breakdown trade.” In such trades, the ”take profit” should be small based on the overall trend.

AUD/CAD | Before The Announcement

AUD/CAD | After The Announcement

The above images represent the AUD/CAD currency pair, and in the first image, we see that the overall trend is down, suggesting weakness in the Australian dollar, and now the price seems to be retracing the down move. If the data were to be positive for the Australian economy, we need to be extra cautious before attempting a buy trade as the trend is down, and there is a high chance that it might get sold into. However, bad news can work in our favor and might result in a further down move. After the news announcement, we see an increase in volatility to the upside, and the price closes with a bullish ”news candle.” Traders buy Australian dollars after they realize that the Corporate Tax rate was unchanged, which is good news for the manufacturing sector, particularly. One should be trading the pair on the long side, only after suitable reversal patterns are seen in the market.

AUD/CHF | Before The Announcement

AUD/CHF | After The Announcement

This is the AUD/CHF currency pair, where the chart characteristics appear to be similar to the AUD/CAD currency pair. Also, here the market has recently formed a range and currently at the bottom of the range. In this pair, positive news data can prove to the ideal case for going ”long” in the market as the price is at a point from where some buyers can pop up anytime. In any case, it is advised to analyze the data and then trade. After the Corporate Tax rate announcement, the market again moves higher, and volatility increases on the upside, which strengthens the Australian dollar by little. The sudden surge in price is because of the positive Corporate Tax data, and thus traders turn bullish on the currency. One can go ”long” in the market with a ”take-profit” at the ”resistance” of the range and stop-loss below the ”support.

That’s about Corporate Tax rates and the impact of its new release on the price charts. Let us know if you have any questions in the comments below. Cheers.