DeFi trading can be a bit of a nightmare for tax reasons. It’s important to make a good faith effort and claim your profits and losses as accurately as you can.
Crypto is seen as a digital asset, so capital gains rules apply when buying and selling it. If crypto is held for over a year, most people pay 15% or 20%, based on your income threshold and filing status. Hold it for one year or less, and you’ll be taxed whatever your normal income tax rate is.
You can also keep a small amount of crypto on a centralized exchange like Coinbase without telling Uncle Sam (let’s be honest—he most likely knows), but once you exchange it for U.S. dollars or other cryptos where there may be a profit or loss from the exchange rate conversion, you should log those transactions for tax time.