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Taxes: Koinly

Lost when it comes to your Loopring taxes? You’re not the only one - that’s why we’ve partnered with crypto tax calculator, Koinly, to fill you in on everything you need to know. Crypto tax? It’s a pain all right. Many Loopringers have faced the mountain of spreadsheets as they try to navigate their gains, losses and income from crypto investments…and that’s without even factoring in the headache of DeFi taxes thanks to a distinct lack of guidance from tax offices around the world. Fortunately for Loopring investors, crypto tax just got a whole lot easier as we’ve partnered with crypto tax calculator Koinly to make tax less taxing. In our guide, we’re covering everything you need to know about your Loopring taxes, including how crypto is taxed, DeFi taxes, NFT taxes, and how to do your Loopring taxes in a fraction of the time with Koinly.

Crypto Tax 101

Starting with the basics - yes, crypto is taxed in almost every country in the world. Although, the exact tax you’ll pay depends on your transactions and where you live, as each tax office has their own take on it. You can get more information for your country in Koinly’s crypto tax guides, but generally speaking, here’s your crash course on crypto tax.

Crypto Capital Gains Tax

Crypto is generally seen as a capital asset. Whenever you dispose of an asset - including crypto - you’ll need to pay Capital Gains Tax on any gain made. Disposals of crypto include:
  1. 1.
    Selling crypto for fiat currency, i.e. USD, AUD, CAD, GBP.
  2. 2.
    Trading one crypto for another cryptocurrency - including stablecoins, tokens and NFTs.
  3. 3.
    Spending crypto on goods or services.
  4. 4.
    Gifting crypto - depending on where you live.
Of course, not all investments end with a gain. If you’ve made a loss, it’s not all bad news when it comes to your taxes as you can actually offset your losses against your gains and reduce your overall tax bill.

Income Tax

If you’re seen to be earning crypto - for example, staking rewards - then you may be required to pay Income Tax upon receipt instead. The guidance here really varies from country to country, so make sure to check your crypto tax rules, but generally speaking, activities considered income and subject to Income Tax may include:
  1. 1.
    Getting paid in crypto in exchange for a service.
  2. 2.
    Staking rewards.
  3. 3.
    Mining crypto.
  4. 4.
    Airdrops and even potentially coins/tokens received from a hard fork.
  5. 5.
    A variety of DeFi investment activities (more on this in a minute!)
If you’re deemed to have made additional income from crypto investments, you’ll need to calculate the fair market value of any tokens in your fiat currency on the day you received them and report this to your tax office, and pay Income Tax on that sum.

Is nothing tax free?

It’s not all bad news - not every single one of your crypto transactions are subject to tax… yet anyway. Generally speaking, you won’t pay tax when you:
  1. 1.
    Buy crypto with fiat currency.
  2. 2.
    Transfer crypto between your own wallets - although transfer fees are not quite so clear from a tax perspective.
  3. 3.
    HODL crypto - unless your country has a Wealth Tax that applies to capital assets,
  4. 4.
    Gift crypto - depending on where you live.
  5. 5.
    Donate crypto to a registered charity - in fact, you can usually deduct this from your tax bill.
A quick note on transfer fees - the guidance here is complicated. As you pay gas fees in crypto, this is potentially a disposal, and may therefore be a taxable transaction. However, in some instances, these may be an allowable expense and therefore tax deductible, or you can simply realize no gain or loss from the disposal.

What about NFT taxes?

Wondering how NFT taxes differ from crypto taxes? Well, overall, they don’t. From a tax perspective - NFTs aren’t all that different to any other token. Generally, they’re still seen as a capital asset, so when you dispose of an NFT by selling or trading it, you’ll pay Capital Gains Tax on any gain you made as a result. Similarly, if you dispose of your NFT and make a loss, you can offset these losses against your gains and reduce your tax bill. Of course, a key difference is that when you buy an NFT, you’re almost always buying using cryptocurrency and not fiat currency. This is likely to be viewed as a crypto to crypto trade and any gain you make from the crypto you traded for your NFT would be subject to Capital Gains Tax. A caveat here though, the tax treatment of NFTs may vary if you’re creating and selling NFTs. If you’re doing this and earning, there’s the potential this could be viewed as a kind of additional income and subject to Income Tax instead, which is generally a much higher tax rate.

And DeFi Taxes?

DeFi taxes get complicated, because few tax offices have released any guidance. So instead, you need to interpret your tax office’s existing crypto tax guidance and apply it to your DeFi transactions. Which means it all comes down to how the specific protocol you’re using works. Some of this is pretty straightforward - like if you’re trading or selling on Loopring Exchange, you can follow the same Capital Gains Tax rules as you would for disposing of any other crypto asset. Similarly, if you’re buying crypto with fiat using a card, this would be tax free generally. Of course, Loopring Exchange isn’t just a dex - there’s a variety of other Earn protocols available each with its own tax implication including staking, AMM pools, so let’s break it down.

ETH Staking

When you stake ETH with Loopring, you're actually staking ETH via the Lido staking protocol, or via Rocket Pool. For example if you stake with Lido, you receive a wstETH token in return. You won't receive more wstETH - instead, your wstETH token value increases over time to reflect ETH staking rewards earned. In this instance, when you staked your ETH, you received a token in return. This is likely to be viewed as a crypto to crypto trade and therefore any gain from the ETH you “traded” potentially subject to Capital Gains Tax. As well as this, when you can eventually unstake your ETH, you’ll trade your wstETH and receive your ETH back - and you’ll realize your gain from your rewards at this point. This is also likely to be viewed as a crypto to crypto trade and subject to Capital Gains Tax as a result. This wouldn’t be the case for all staking though - as if you used a protocol where you staked an asset and received no tokens in return, but instead received staking rewards as new tokens, this would be more likely to be viewed as additional income and subject to Income Tax as a result.

AMM Pools

Earning fees from liquidity pools has become a popular way for crypto investors to put their passive assets to work, but it comes with tax implications. Although on the surface it might seem like you’re simply transferring your capital in order to earn, when you add liquidity to a pool on Loopring Exchange, you’ll receive liquidity pool tokens in return. Similarly, when you want to remove your liquidity from a pool on Loopring Exchange, you’ll exchange your LP tokens back for your capital. For example, if you added LRC & ETH to a pool, you’d receive LP-LRC-ETH tokens. Because you receive tokens in exchange for tokens, this is likely to be seen as a crypto to crypto trade and subject to Capital Gains Tax, both at the point you add liquidity, and at the point you remove it. But wait… there’s more. Some AMM pools have previously offered incentive programs like LRC liquidity mining to encourage investment. These rewards are paid out independently to the fees you accrue in your LP tokens and are directly deposited into your account. In this instance, as you’re earning new tokens, this is more likely to be viewed as additional income and subject to Income Tax upon receipt, based on the fair market value of the tokens at the point you receive them.
Disclaimer The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly and Loopring are not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.