Trying to report your Uniswap taxes?
Uniswap does not provide tax forms to users, so trying to report transactions on your tax return can turn into a struggle.
In this guide, we’ll break down everything you need to know about the taxability of different Uniswap transactions. We’ll also share a simple method that can help you report your Uniswap transactions on your tax return in minutes.
Uniswap is a decentralized exchange founded by Hayden Adams in 2018. The exchange was built based on the concept of an automated market maker, which was outlined in a blog post by Ethereum co-founder Vitalik Buterin.
Today, Uniswap is one of the largest and most popular decentralized exchanges built on the Ethereum blockchain. Rather than having one centralized market maker facilitating trades, Uniswap has thousands of incentivized liquidity providers enabling transactions on the protocol.
Cryptocurrency traded on Uniswap and other platforms is considered property and is subject to ordinary income and capital gains tax in most countries—including the United States.
Capital gains tax: When you dispose of cryptocurrency, you are required to pay capital gains tax depending on how the price of your tokens has changed since you originally received them. One example of a disposal is selling your cryptocurrency for fiat.
Ordinary income tax: When you earn cryptocurrency, you are required to recognize income based on the fair market value of your crypto at the time of receipt. One example of an income event is earning cryptocurrency through staking.
For more information, check out our complete guide to cryptocurrency taxes.
Crypto-to-crypto trades or swaps on Uniswap and other exchanges are considered disposals and are subject to capital gains tax.
Liquidity providers on earlier versions of Uniswap have the option to deposit their cryptocurrency holdings to a liquidity pool. In return, they receive Liquidity Provider (LP) tokens that represent their position within that pool.
Over time, the liquidity pool grows in value from trading fees. Liquidity providers can claim their share of the pool by cashing in their LP tokens.
The IRS hasn’t explicitly ruled on the taxability of contributing to a liquidity pool. However, the conservative approach is to treat these transactions the same as you would any other crypto-crypto trade. You incur a taxable event both when adding and removing liquidity and incur a capital gain/loss based on how the value of your asset has changed since you originally received it.
In September 2020, Uniswap airdropped tokens to thousands of users.
It’s important to remember that airdrops are taxed as income based on their fair market value at the time of receipt. If you sell your airdropped rewards, you’ll incur a capital gain or loss depending on how the value of your tokens changed since you originally received them.
For more information, check out our complete guide to airdrop taxes.
Instead of LP tokens, Uniswap V3 gives liquidity providers an NFT that represents their position in the liquidity pool. At any time, liquidity providers can trade their NFT for their share of the LP pool.
Again, the conservative approach here is to report a taxable event both when adding and removing liquidity and incur a capital gain/loss based on how the value of your asset has changed since you originally received it.
At this time, the majority of decentralized protocols like Uniswap do not report to the IRS.
This may change in the near future. The American infrastructure bill requires cryptocurrency ‘brokers’ to send 1099-B forms to customers and the IRS starting in 2023. At this time, it’s not clear whether decentralized protocols like Uniswap will be considered brokers.
Still, it’s important to remember that Uniswap transactions are publicly visible on the Ethereum blockchain. In the past, the IRS has partnered with contractors like Chainalysis to analyze blockchain transactions and crack down on tax fraud.
At this time, Uniswap does not provide tax documents to users. Currently, Uniswap users are responsible for tracking their own taxable events.
Trying to report your cryptocurrency taxes manually can be time-consuming. Cryptocurrency tax software like CoinLedger can help simplify the tax reporting process.
CoinLedger can help you report your Uniswap taxes in 3 simple steps.
And that’s it! Once you’ve uploaded your cryptocurrency transactions from other exchanges, you’ll be able to generate capital gains and income reports with the click of a button.
With CoinLedger, crypto tax reporting has never been simpler. More than 300,000 crypto investors use the platform to track the value of their holdings and file their taxes in minutes.