Among the top decentralized cryptocurrency exchanges in the world, PancakeSwap is used to swap BEP-20 tokens. In short, BEP-20 tokens are those that are developed on the top of the Binance blockchain and do not specifically have their own blockchain as compared to other currencies.
The advantages that it gets since it is built on the Binance blockchain are plenty. For starters, it is fast, carries fewer gas fees, and see good, optimistic growth since the last few years.
Does PancakeSwap Report To IRS?
PancakeSwap does not directly report to the IRS. One reason could be that the laws are not yet cleared for crypto-to-crypto swapping and decentralized exchanges.
The terms and conditions page or the privacy policy does not mention that they explicitly share with the tax authorities.
But they are to maintain a record of the transactions of its customers and be ready for a change in the law that reinforces through SoPs for all decentralized exchanges to start officially reporting the numbers.
How To File Taxes With A PancakeSwap?
It’s slightly complicated in the case of PancakeSwap because it also does not have an option for CSV export of your transactions. Here are two ways in which you can file taxes with your PancakeSwap transactions:
Method 1: Use Third-Party Tax App
Use a crypto tax app like cryptotaxcalculator.io, koinly, etc. Here, you can enter the BSC wallet public address that operates in your PancakeSwap account.
This connects the wallet to the tax software and based on the transaction history it receives, the tax report is automatically calculated in a predetermined template.
The report will calculate your gains, losses, net income and the corresponding tax that you have to pay.
Method 2: Use BScan
If you want to do your taxes manually, you will still need to have the transaction history. In this case, you can use third-party tools that just generate the CSV file of transaction history for you.
One of the recommended ones is BScan. Use this file to calculate the total tax that you have to pay.
Does PancakeSwap Give Tax Documents?
No, Pancake Swap does not provide any type of a tax report or financial statement. You can export your transaction history on PancakeSwap and upload it on an automated crypto tax software that generates your report.
What Do You Pay Tax For on PancakeSwap?
One of the most commonly asked questions by users is, is every activity/purchase/ transaction on PancakeSwap taxable? Let’s find out.
- Trades: You have to pay taxes on trades as they come under capital gains. In general, you need to pay the tax even when you have traded one token to the other.
- Add/Remove Liquidity: There is no clear guidance from the IRS on this yet. However, when you add/remove liquidity on PancakeSwap, you get a liquidity token and this could potentially be seen as crypto to crypto trade. Therefore, you may need to pay capital gains tax for this.
- Staking Liquidity Pool Tokens: Again, there are no clear guidelines from the IRS on this yet. But since you would be receiving new tokens, this could be considered as crypto to crypto trade. You will need to pay taxes on the upside of the value that you receive the new tokens for.
- IFO: Again, no clear guidelines of the IRS on this. Some argue that since there is no value for IFO credits outside the platform, it is not taxable. However, others believe that if you have staked CAKE for an IFO, it has gained value and this could come under Capital Gains. It is recommended to speak to a crypto tax expert to know more about this.
- Lottery: No clear guidelines on this yet. Typically, you have to pay both the state as well as the federal when you win the conventional lottery. Start with checking the local lottery rules based on where you live and again, recommended to ask a crypto tax expert.
- NFT: If you sell a NFT, you have gains in capital so it will come under Capital Gains Tax. And when you buy NFT, it is seen as a crypto to crypto trade and it will carry that tax accordingly.
Cryptocurrency Taxes: How Do They Work?
Do remember that cryptocurrency is still in the nascent stage and the IRS is working hard to enforce consistent and acceptable cryptocurrency tax guidelines.
According to the government rules, you are supposed to pay taxes on crypto. They consider cryptocurrency as an asset (or property) and accordingly, similar rules apply.
When you dispose of, sell or trade cryptocurrency, you would need to pay tax on the gain. For instance, you have got a cryptocurrency at $10000 and you sell it at $15000, you need to pay tax on the $5000 gain.
On the other hand, if you do report a loss when you dispose of cryptocurrency, you can have that deducted from your losses. Also, note that buying cryptocurrency is not a taxable event. Even if the value of the coin increases, you can buy and hold them without paying any taxes.
The IRS has been actively participating in this space so that investors pay their crypto taxes effectively. On form 1040, cryptocurrency owners must answer if they have had any virtual currency transactions during that year.
On the other hand, cryptocurrency exchanges are also required to file Form 1099-K for clients who hold more than 200 cryptocurrencies and have more than $20000 in training in that fiscal year.
Conclusion
Typically no. A lot of trading and staking rules are not even defined by the IRS. However, it is still the obligation of the user to report taxes wherever they may face a capital gain or crypto to the crypto trade. If they wish to hide it, it could lead to potential legal consequences in the future.
