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For all of you U.S. based #DeFi farmers, listen up! Some of you may already know this but some may not.When you farm #DeFi tokens, the moment you "claim" the token it is treated like ordinary income and is taxed at the dollar value the moment you claim.
"Ordinary income" is the key word here because taking a loss on the farmed tokens does not offset "ordinary income" gains when you "claim" your #DeFi tokens. Trading losses do not offset ordinary income gains. (caveat: you are allowed up to $3,000 maximum tax loss harvest).
For example, if you had farmed and claimed $10,000 of CRV and then CRV prices crashed and it is now only worth $1,000, even if you sell all of it, you still owe taxes on the full $10,000!
Your taxes on $10,000 is likely more than the $1,000 you were able to get.
Your taxes on $10,000 is likely more than the $1,000 you were able to get.
Here is my PRO TIP: Make you sure immediately sell 10-20% (or more) of your claimed farmed tokens (if you plan on HODLing) and sock it away as stablecoin for taxes, that way if your farmed token price tanks you can still pay off your tax liability!
SUPER PRO TIP: After you sell the 10-20% (or more) as stablecoin for taxes, consider parking it somewhere that is earning interested so even your tax money is working for you and making money!
*Don't ask me where to park it! That's your decision based on your risk tolerance.
*Don't ask me where to park it! That's your decision based on your risk tolerance.
