Best tax-reducing business expenses for DeFi traders

Some people trade cryptocurrencies to make quick money from the price volatility. But most crypto traders are excited about the future of crypto and DeFi, and hold digital currencies for the long-term.

DeFi traders and the tax mess

“Crypto currencies are used not only as payment methods, but also as investment opportunities,” says Shane Brunette, the founder of CryptoTaxCalculator. He adds that the “virtual currencies have also created a legal vacuum, which is now rife with regulations. A lot of them revolve around tax and the way that cryptocurrency taxes are paid.” 

Crypto traders often struggle to figure out their tax obligations. You might not be keeping track of your crypto transactions, but the authorities are going to tax your crypto gains nonetheless. 

The US Internal Revenue Service asks American taxpayers in its Form 1040 if they have at any time during a given year bought, sold, sent or exchanged any virtual currency.

The crypto landscape is rapidly evolving, and so are the tax regulations around them. Authorities have started scrutinizing digital asset holders closely. 

In general, cryptocurrencies are non-government currencies rather than property. But “many countries view cryptocurrencies as property with associated capital gains implications,” points out Brunette. 

For instance, the US Internal Revenue Service (IRS) treats cryptocurrencies as property rather than currency. Shane Brunette adds,

If you save money in crypto, then want to buy goods (or other crypto) with that crypto, you are going to have to keep track of any gains, which can quickly become a nightmare.

The amount you owe in crypto taxes depends on your annual income and how long you’ve held the crypto assets. If you have owned a digital currency for less than a year before selling or spending it, the profits would be considered short-term capital gains and taxed at your normal income tax rate.

But if you’ve held it for longer than a year, it is a long-term capital gains event. It means they will be taxed at a lower rate, depending on your income. 

In case you earned cryptocurrencies through mining or received it as promotion, reward, an airdrop or payment for goods and services, tax authorities view it as your regular taxable income. You owe tax on the entire value of the digital currency on the day you received it, at your regular income tax rate.

Keep track of these expenses and deductions

It’s important to be aware of the tax-deductible business expenses. Platforms like CryptoTaxCalculator simplify the record-keeping and tax filing for DeFi traders. It would help you reduce your tax bill without incurring the wrath of the tax authorities. 

Among the most overlooked expenses are the fees traders pay for transactions. Shane Brunette told us that it’s important to carefully account for all the fees. They could lead to significant savings. If you are paying fees in crypto, you will also have to account for the capital gains or losses on the fee itself.

Active DeFi traders could qualify for the Trader Tax Status (TTS), which allows them to deduct trading business and home office expenses. TTS traders can write off health insurance premiums and retirement plan contributions by trading through an S-Corp with officer compensation.

If you mine cryptocurrencies, you spend money on computers, servers, Internet services, electricity, graphics cards, and more. So, you could deduct the mining-related expenses against your income. The exact amount you can deduct will depend on whether you treat it as a hobby or business.

Traders who have been victims of a Ponzi scheme can deduct their Ponzi losses from the taxable income. These are not subject to the $3,000 capital loss limitation in the US. Make sure to check the tax laws in your country.

In case you have incurred losses from crypto hacks, scams or theft, don’t forget to claim these losses as $0 proceeds transactions. For example, if you bought $5,000 worth of Ethereum but it was later stolen in an exchange hack, you’ll be able to report losses of $5,000.


Most of us don’t keep track of our crypto transactions and pay little attention to all the tax deductions we could take to reduce the tax bill on trading. Tax authorities have stepped up enforcement and surveillance on potential tax evasion by looking closely at crypto transactions. So, it’s wise to start keeping track of the transactions, gains, losses, and expenses.


DISCLAIMER: This article is for informational purposes only and should not be considered as tax advice.

Der Beitrag Best tax-reducing business expenses for DeFi traders erschien zuerst auf Crypto News Flash.