TokenSets Tax Reporting
TokenTax imports TokenSets data for easy cryptocurrency trade tracking and tax filing.
Introduction to TokenSets
Set is a protocol which allows you to create portfolio tokens for asset management. The portfolio tokens themselves, referred to as TokenSets, can be a variety of crypto asset portfolio allocations, algorithmic trading strategies, or a successful trader’s transactions. Advantages of using TokenSets over managing your portfolio yourself include automated rebalancing within the token and simplified automation.
Unique tax considerations for TokenSets
Under normal crypto tax circumstances, all trades between cryptocurrencies and all trades between crypto and fiat currency are taxed. You can read more about standard crypto tax treatment in the United States and other countries on our helpful guide or ask us on our chat function (lower right corner).
However, TokenSets have some characteristics that differ from standard crypto transactions. Because your token is a portfolio strategy itself, the automated underlying activities such as rebalancing are not taxed. Instead, you are taxed on your overall capital gains from the time you purchased the TokenSet until the time you sold the TokenSet. For tax purposes, this is a more elegant treatment because you are reporting one transaction instead of every group of transactions required to rebalance a portfolio.
It is important to understand that Decentralized Finance (DeFi) protocols often have more complex tax treatment because they frequently automate multiple transactions in what you may perceive as a single transaction. For more information on the tax treatment of other DeFi protocols, you can read our DeFi tax guide.
How TokenTax software can help you calculate and file your tax return
Particularly for DeFi protocols, you will want to use crypto tax software to unwind all of your trades into tax lots. For example, crypto tax software will automatically import your TokenSets transactions and treat them separately from your other portfolios of assets. From there, you can automatically calculate your tax liability for a variety of accounting methods specific to your country of residence’s regulations.
Crypto tax software automatically formats, standardizes, calculates and fills in your tax forms. You can then export your tax forms in a variety of formats to provide to your tax authority.
Trying to do this yourself is not an easy task, especially if you traded on multiple platforms with any frequency. Ask our team for help with your individual tax situation on our chat (lower right corner).
How you can save money on your DeFi taxes
TokenSets have a unique tax advantage in that you can hold a portfolio of crypto assets and rebalance it automatically while still being taxed at the lower long-term capital gains rate. You can also use year-end tax loss harvesting to selectively sell off underperforming tax lots using a strategy typically implemented by hedge funds to reduce their taxes on their equity trades. Additionally, the Internal Revenue Service (IRS) and many other national tax agencies have allowed specific identification accounting, so you can reduce your tax bill by using our proprietary minimization algorithm.
Ask us anything about how we can help you with your unique tax issues on our chat function. We’re here to help.
Importing a TokenSets API into TokenTax
To add your TokenSets transactions, simply add your ETH wallet address(es) to the import tab of your TokenTax account. Through your ETH wallet(s), TokenTax will automatically sync your public transactions.