Wondering how stablecoins are taxed?
In recent years, stablecoins have become a more and prominent part of the crypto ecosystem. In Q2 of 2021, it was estimated that stablecoins had a stunning transaction volume of $1.7 trillion.
Right now, you may be using stablecoins such as USDC, Tether, or DAI in your transactions. In this article, we’ll break down how you can report these transactions on your tax return.
Many crypto investors are hesitant to use cryptocurrencies like Bitcoin and Ethereum in everyday transactions. Many consider these assets to be long-term investments and do not want to spend them, incur capital gains, and miss out on future price appreciation.
Stablecoins were designed to solve this problem and give cryptocurrency users a currency they could use on a daily basis.
Stablecoins are not intended to increase in value over time — instead, they are designed to track the costs of external commodities or currencies. There are currently stablecoins that track gold, oil, and the South Korean Won. However, most popular stablecoins track the price of the U.S. dollar.
Despite the fact that stablecoins were designed to be used in everyday transactions, they are not treated differently than any other cryptocurrency from a tax perspective.
Using a stablecoin to pay for a good or service or trading it for another cryptocurrency is considered a taxable event.
You will incur capital gains based on how the price of your stablecoins has fluctuated. Since most popular stablecoins are designed to track the price of the U.S. dollar, it’s likely that your capital gain will be close to 0. However, you should report all of these transactions on your tax return.
Trading cryptocurrency such as Bitcoin or Ethereum for stablecoin is considered a disposal event. You will incur capital gains or capital losses depending on how the price of your assets has changed since you originally received them.
If you receive stablecoin as payment for your goods and services, you’ll be required to report it as ordinary income. Your tax rate on these earnings will vary depending on what tax bracket you fall into for the year.
Transferring stablecoins between wallets is not considered a taxable event and should not be reported on your tax return.
Many popular crypto applications like BlockFi and Celsius allow users to earn interest in stablecoin. In this case, your rewards will be considered ordinary income and will be taxed accordingly.
Whether you’re doing transactions in stablecoins, making trades in Bitcoin, or buying NFTs with Ethereum, one thing remains true: doing your crypto taxes is incredibly complicated.
CryptoTrader.Tax can help. Our crypto tax software platform can integrate with exchanges like Coinbase, Kraken, and Gemini to automatically track your cryptocurrency transactions. Once tax season rolls around, you’ll be able to file your return in minutes.
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