Balancer Tax Reporting
TokenTax imports Balancer data for easy cryptocurrency trade tracking and tax filing.
History of the Balancer DeFi protocol
Balancer is a Decentralized Finance (DeFi) protocol founded in 2018. The Balancer platform is a swap trading platform which also allows you to contribute to its liquidity pools. The liquidity pools themselves are asset portfolios with different compositions of cryptocurrencies for the different liquidity pools.
You can contribute liquidity to the Balancer pools and receive fees for every time that particular pool is used to facilitate a swap trade on Balancer. Balancer Pool Tokens (BPTs) are the means by which you receive earnings on your contribution to the Balancer liquidity pools. These tokens increase in value based on the portfolio performance of the liquidity pool.
The IRS has not issued guidance on transfers into liquidity pools, so there are two possible ways to treat them on your taxes. If you choose to treat transfers into liquidity pools as a taxable event, you recognize any capital gain or loss on assets that you exchange for their BPT equivalents. You may also elect to file these as non-taxable exchanges. We recommend that you consult with a tax professional. You can read more about this issue in our full DeFi tax guide.
If you are investing in the liquidity pools and holding BPT tokens tied to the value of the portfolio of assets, you are subject to capital gains or losses on your earnings. The tax is incurred at the time of disposition of your BPT; in other words, when you trade BPT for another crypto or sell BPT for fiat currency.
You can also receive BAL tokens for investing in the liquidity pool portfolios. The tokens are distributed through disperse.app to you for as long as you are providing liquidity to the pool. Taxes for Balancer function similar to other DeFi protocols with liquidity pools
You may be subject to income tax, capital gains tax or both depending on how you are using Balancer. If you are receiving BAL tokens in exchange for contributing to the Balancer liquidity pool, you are taxed on these earnings as income at the time of receipt.
However, if you trade your BAL for another crypto or sell BAL for fiat currency, you are taxed on any capital gain or loss at the time of disposition. Your cost basis for accounting purposes is the BAL value at the time of receipt.
Lastly, if you are swapping coins on Balancer, you are taxed on your transactions as capital gains or losses, as with all crypto to crypto trades. You are also subject to capital gains or losses taxes when you sell your crypto for fiat currency.
For more information on all DeFi taxes, please read our DeFi tax guide for an overview or reach out to us on our chat function (lower right corner) to ask any questions you may have about your unique tax situation.
If you have crypto tax questions about other topics besides DeFi, we also have a crypto tax guide for the United States and other countries.
How tax software can help you reduce your DeFi trading tax bill
On a platform such as Balancer, you are likely trading frequently and realizing capital gains throughout the tax year. You also may be yield farming across different DeFi protocols, so it is in your best interest to start planning your taxes from the beginning.
You need to understand how much taxes can cut into your profits, and you should plan to keep enough fiat currency on hand from your earnings in order to pay your tax bill.
You can therefore use the TokenTax minimization algorithm to reduce your tax liability. You can also strategically sell off tax lots using our tax loss harvesting software at year-end before you find out that you have a surprisingly high tax bill.
Especially on short-term capital gains, your tax rate on any earnings is high, so it is important to plan ahead and ask an accounting firm for help figuring out your taxes.
How tax software can simplify your tax reporting requirements
If you are a frequent trader on Balancer or if you have used a variety of different crypto platforms and transaction activities, it is likely in your best interest to use crypto tax software.
Utilizing TokenTax software, you can automatically sync all of your DeFi transactions into one account from which you can automatically calculate your tax bill and export the respective forms to submit to your local tax agency.
Importing a Balancer API into TokenTax
To sync all of your trades from Balancer, add your ETH wallet address(es) in your TokenTax dashboard import tab. Via your ETH wallet(s), TokenTax will import and standardize all your transactions.