yearn.finance Tax Reporting
TokenTax connects to yearn.finance for easy crypto-currency trade tracking and tax filing.
What is yearn.finance?
yearn.finance is a decentralized finance (DeFi) protocol which allows you to earn interest, “zap” trades in and out, compare APY across DeFi interest protocols for a variety of tokens and amounts, and save your crypto in vaults. To facilitate earning the best interest across different protocols, yEarn utilizes YFI governance tokens or yTokens.
Tax implications of yEarn
If you earn YFI tokens, you are taxed on the amount as income. The income amount is determined at the time you earned it. Other activities are taxed as capital gains or losses.
If your YFI token subsequently increased or decreased in value after your acquisition, you are taxed on this increase as capital gains or decrease as capital losses based on when you dispose of the token. Disposing of the token includes trading it for another token or selling it for fiat currency.
Learn more about how DeFi activities are taxed in our guide overview, and learn more about crypto taxes in the United States and other countries in our crypto tax guide. Please ask us anything on our chat (lower right corner) as most of our team has dabbled in DeFi investing and taxes since these protocols went live. We have sorted out many tricky tax situations and have gained the experience to help you with your taxes.
How crypto tax software can help
If you traded across multiple DeFi platforms, you likely have a tangled collection of transactions (interest, trades, portfolio tokens, etc.) to unwind for your tax liability calculation and reporting. You can automatically import your public DeFi transactions into our TokenTax dashboard and choose your accounting method to automatically format and calculate your taxes owed. Afterwards, you can also automatically export your tax reports in whichever format you would like to use.
Additionally, if you had large profits, read more on how crypto tax software can decrease your tax bill below.
The importance of year-end tax planning
If you were lucky enough to hold YFI tokens before their value spiked in 2020, you need to plan for your tax bill before year-end. Each time you sell or trade your tokens, you realize more capital gains, so you will need the help of an accountant with crypto tax software to help you estimate how much tax you owe and need to have on hand in fiat currency.
How to reduce your DeFi tax bill
There are two major ways that crypto tax software pays for itself by reducing your tax bill: tax loss harvesting and specific identification accounting. Tax loss harvesting is a way to strategically realize capital losses to reduce your tax liability at year-end. Similarly, you can use our proprietary minimization algorithm to minimize your tax bill in countries where the local tax authority has deemed specific identification as an acceptable accounting method, such as the United States.
Importing a yearn.finance API into TokenTax
Add any ETH address(es) that you've used for yEarn to TokenTax and your yEarn transactions will be imported. We only use information that is publicly available on the blockchain, so you do not have to worry about providing your address(es).