10 Questions Every Yield Farmer Needs to Answer for Tax Season

With the growth of DeFi and the popularity of yield farming, it's more important than ever for crypto investors to understand the tax implications of their investments. As a yield farmer, you want to ensure you're reporting all of your crypto gains and losses accurately to avoid any potential penalties from the IRS. To help you get started, we've put together a list of 10 questions every yield farmer needs to answer for tax season.

1. What is the tax treatment of yield farming rewards? Yield farming rewards are considered taxable income and should be reported on your tax return. You will need to calculate the fair market value of the rewards you received in USD on the day you received them.
2. How do I calculate the fair market value of my yield farming rewards? The fair market value of your yield farming rewards can be calculated using a reputable cryptocurrency exchange that lists the token you received. You'll need to determine the token's USD value on the day you received the reward.
3. What if I staked my tokens to earn yield? If you staked your tokens to earn yield, the rewards you received are considered taxable income. You will need to calculate the fair market value of the rewards in USD on the day you received them.
4. What if I borrowed tokens to earn yield? If you borrowed tokens to earn yield, the interest you received is considered taxable income. You will need to calculate the fair market value of the interest in USD on the day you received it.
5. How do I report my yield farming rewards on my tax return? Yield farming rewards are reported on your tax return as taxable income. You'll need to fill out Schedule 1, Additional Income and Adjustments to Income, and report the fair market value of your rewards in USD on the day you received them.
6. What if I traded my yield farming rewards for another cryptocurrency? If you traded your yield farming rewards for another cryptocurrency, you'll need to report any gains or losses from the trade. The gain or loss will be calculated by subtracting your cost basis (the fair market value of the yield farming rewards in USD on the day you received them) from the fair market value of the cryptocurrency you traded for in USD on the day of the trade.
7. What if I sold my yield farming rewards for USD? If you sold your yield farming rewards for USD, you'll need to report any gains or losses from the sale. The gain or loss will be calculated by subtracting your cost basis (the fair market value of the yield farming rewards in USD on the day you received them) from the USD amount you received from the sale.
8. What if I held my yield farming rewards for less than a year? If you held your yield farming rewards for less than a year, any gains from the sale or trade of the rewards are considered short-term capital gains and are taxed at your ordinary income tax rate.
9. What if I held my yield farming rewards for more than a year? If you held your yield farming rewards for more than a year, any gains from the sale or trade of the rewards are considered long-term capital gains and are taxed at a lower rate than your ordinary income tax rate.
10. Can I use a tax reporting platform to help me with my yield farming taxes? Yes, you can use a tax reporting platform such as Ledgible to help you with your yield farming taxes. Ledgible is an AICPA SOC 1 & 2 assured tax reporting and portfolio tracking platform for professionals, enterprises, and consumers for crypto assets. With Ledgible, you can!