Detailed Instructions

Begin by analyzing the blockchain transaction to determine the exact taxable event. This is the core action, such as a sale, trade, or receipt of income, that creates a capital gain, loss, or ordinary income. Jurisdictions like the US (IRS) and UK (HMRC) treat crypto as property, making almost every disposition a potential event.

• Sub-step 1: Parse the transaction log from your wallet (e.g., MetaMask transaction history or Etherscan) to identify the action type (e.g., 'Swap', 'Transfer', 'Mint').
• Sub-step 2: Classify the event using common categories: Dispositions (selling for fiat, trading for another crypto), Income (staking rewards, airdrops), and Transfers (non-taxable moves between your own wallets).
• Sub-step 3: Map the event to jurisdictional rules. For example, in Germany, holding stablecoins for over one year may yield tax-free disposals, while in Japan, each trade is a taxable realization event.

Tip: Use a blockchain explorer's internal transaction view to see token transfers triggered by smart contracts, which are often the actual taxable swaps.

Detailed Instructions

For any disposition event, you must establish the cost basis (your original investment) and the fair market value (FMV) at the time of disposal to compute gain or loss. This is critical for stablecoins pegged to fiat, as their value is typically 1:1, but the cost basis in your local currency fluctuates with exchange rates.

• Sub-step 1: Locate the acquisition data for the disposed stablecoin units. This includes the date, amount (e.g., 1000 USDC), and cost in your local currency (e.g., $950 USD if bought at a discount).
• Sub-step 2: Apply a costing method (e.g., FIFO, Specific Identification) as permitted by your tax authority. For example, the IRS allows Specific ID if you can uniquely identify the lot.
• Sub-step 3: Record the FMV at disposal. For a USDC-to-ETH swap, the FMV is the USD value of the USDC at the transaction timestamp. Use a reliable price oracle or historical data from an API like CoinGecko.

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// Example: Calculating gain using Specific Identification
const acquisitionPrice = 0.95; // USD per USDC when bought
const disposalPrice = 1.00; // USD per USDC at time of swap
const quantity = 1000;
const capitalGain = (disposalPrice - acquisitionPrice) * quantity; // $50 gain

Tip: For non-USD jurisdictions, you must convert both cost basis and FMV to your local currency using the official exchange rate at the acquisition and disposal dates.

Detailed Instructions

Once the financial outcome is calculated, you must classify it for tax purposes under the rules of your jurisdiction. This determines the tax rate and reporting form. Stablecoin transactions can yield capital gains/losses or ordinary income, with significant variation globally.

• Sub-step 1: Determine the holding period. In the US, assets held over 12 months qualify for lower long-term capital gains rates. For stablecoins acquired and disposed of within a liquidity pool, track the precise deposit and withdrawal times.
• Sub-step 2: Categorize the income type. Receiving USDT as payment for services is ordinary income. Earning DAI as staking rewards is typically ordinary income (e.g., interest) in the US, but may be classified differently in Singapore.
• Sub-step 3: Apply jurisdictional nuances. In Portugal, personal crypto transactions are currently tax-free, while in Australia, even transferring between your own wallets can be a CGT event if the coins are considered 'personal use assets' below a threshold.

Tip: For DeFi activities like lending, consult local guidance on whether rewards are taxed upon receipt (US) or accrual (some EU countries).

Detailed Instructions

Meticulous record-keeping is essential for compliance and audit defense. You must create a clear, verifiable audit trail linking the on-chain event to your tax return entries. Most jurisdictions require reporting in your local fiat currency equivalent.

• Sub-step 1: Compile the evidence packet for each event. This should include: Transaction ID (e.g., 0xabcd...1234), date/time in UTC, wallet addresses involved (your address: 0xYourAddress, counterparty/DEX address), token amounts, and USD/FMV at the time.
• Sub-step 2: Map the data to tax forms. In the US, report capital gains on Form 8949 and Schedule D. Ordinary income from staking goes on Schedule 1. In the UK, use the SA108 Capital Gains Summary.
• Sub-step 3: Reconcile totals. Ensure the sum of all your calculated gains, losses, and income matches the summaries on your tax forms and any third-party reports (e.g., Form 1099 from an exchange).

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// Example data structure for a single event record
{
  "txHash": "0xfe...c12",
  "date": "2024-03-15T14:30:00Z",
  "eventType": "Swap",
  "fromToken": {"symbol": "USDC", "amount": 500, "costBasisEUR": 460},
  "toToken": {"symbol": "ETH", "amount": 0.2, "fmvEUR": 500},
  "calculatedGainEUR": 40,
  "jurisdiction": "DE"
}

Tip: Use dedicated crypto tax software or a structured spreadsheet. Retain records for the statutory period (e.g., 6 years in the UK, 7 years in the US if claiming a loss).