PancakeSwap taxes can be a breeze when you know the steps to become tax compliant without much extra work.
PancakeSwap is now a leading decentralized exchange built under the Binance Smart Chain (BSC) network, differentiating itself from Ethereum-based DEXs.
With BSC, PancakeSwap offers more speed and fewer transaction costs for traders looking to dive into DeFi. Gas fees (transaction costs) are a big issue with Uniswap and other ETH-based decentralized exchanges, while PancakeSwap brought this innovation to the space.
Additionally, PancakeSwap offers more than token swaps, with liquidity pooling, crypto farming, and more. Today, we cover all the taxes involved when trading on PancakeSwap.
Do you pay taxes on PancakeSwap?
In short, yes.
Token swaps are crypto-to-crypto trades, which are taxable events in the US. Each time you convert one token for another on PancakeSwap, you’re incurring a taxable event, subject to capital gains taxes.
In the US, the IRS taxes any crypto-to-crypto or crypto-to-FIAT trades in both centralized and decentralized exchanges the same way. You must report the gain/loss on each token swap in your tax returns.
PancakeSwap also offers liquidity pooling and the chance to earn interest or rewards when staking your crypto, which are taxable events in the US. We’ll cover this in more detail later in the article.
How are swaps taxed? Decentralized exchange taxes
Token swaps on PancakeSwap, Uniswap, SushiSwap, or any other decentralized exchange are taxable events in the US. Even though trading on DEXs can be more anonymous than trading on centralized exchanges like Binance, the crypto tax reporting obligation remains.
Each token swap, essentially a crypto-to-crypto trade, must be reported to the IRS, and you have to determine the gain or loss for each trade.
How to report PancakeSwap trades on taxes?
In the US, you have to report the gain/loss for each crypto-to-FIAT or crypto-to-crypto trade.
As a result, if you’re trading tokens on PancakeSwap, you’ll have to report all the gains/losses for those trades. You’ll have to keep track of your trades and report them on Form 8949 and Schedule D of your Form 1040. For more information, check this guide on how to report your crypto taxes.
How to keep track of PancakeSwap trades for taxes?
If you are a crypto trader with thousands of transactions in several DEXs, it can feel overwhelming to keep track of all of them. However, we have an easy solution.
You can use a crypto tax software like CoinTracking to easily import your PancakeSwap trades using our BSC importer. You can easily copy your Binance Smart Chain address – the one you use on PancakeSwap – and paste it into CoinTracking.
Learn how you can import your PancakeSwap trades into CoinTracking:
In a few minutes, you can import all your PancakeSwap trades, and CoinTracking will automatically calculate the gain/loss for each trade. For each tax season, you can generate appropriate tax reports.
Do you have to pay taxes on Uniswap trades?
If you trade crypto on Uniswap, you’ll have taxable events on each token swap. Those crypto-to-crypto trades on Uniswap are taxable events, subject to capital gains taxes.
On Uniswap, you can do more than token swaps. For example, provide liquidity to a trading pair. However, the tax implications of liquidity mining and trading tokens are different. Check our Uniswap taxes guide to clarify any questions.
How to keep track of trades on DEXs like PancakeSwap?
CoinTracking supports many BSC and ETH-based decentralized exchanges (DEXs). If you use Uniswap, SushiSwap, or 1inch Exchange, you can follow the same process but with your Ethereum address.
You can simply paste the ETH address you use on Uniswap or other DEXs and paste it into CoinTracking. In a few minutes, you’ll have all your Uniswap trades imported and your gains/losses calculated.
How is liquidity on PancakeSwap taxed?
Liquidity pools are still a new topic from the US crypto taxes perspective, but you should be aware of its implications. If you’re using PancakeSwap liquidity pools, you’ll gain new tokens from providing liquidity.
There could be two approaches:
- Recognize a taxable trade between the crypto you deposit into the PancakeSwap liquidity pool and the LP token received. The sale of the crypto you put in the liquidity pool will have a gain/loss, which you need to report. This is an easier method than the next alternative.
- Treat the receipt of an LP token as a loan, which is not a taxable event in the US. We encourage you to check our DeFi taxes guide for more clarifications on this issue.
How are yield farmings on PancakeSwap taxed?
Gaining rewards from yield farming is a taxable event in the US. When you stake your LP tokens on PancakeSwap Farms, you’ll receive interest in the form of crypto rewards, which will be taxable.
When you receive the rewards, you must determine the Fair Market Value (in USD) of the rewards and report them as income on your tax return.
Gaining staking rewards adds up to your overall income for the year, and it is not taxed as capital gains like for token swaps. Check our crypto staking tax guide for all clarifications on gaining crypto rewards.
How to do your PancakeSwap taxes?
- Import your PancakeSwap trades with CoinTracking’s BSC importer.
- Calculate capital gains on your trades, according to IRS-approved accounting methods.
- Generate tax reports with CoinTracking.
The Best PancakeSwap tax software: CoinTracking
CoinTracking covers all your tax needs for decentralized exchanges like PancakeSwap or Uniswap.
When using BSC-based DEXes like PancakeSwap, you can paste your BSC address into CoinTracking and import all your trades.
When using ETH-based DEXes like Uniswap or SushiSwap, you can paste your ETH address into CoinTracking in a few minutes. CoinTracking will automatically calculate all the trades for you.
Moreover, CoinTracking can easily classify all your earnings from crypto staking, liquidity pools, earning crypto interest, and much more.
Here are a few things that CoinTracking can do for you:
- Importing (API & CSV) your trades from 110+ exchanges/wallets.
- 25+ advanced reports, including which coins offer you a tax-free rate.
- Automatic capital Gains, according to 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.
- Generate complete Tax Reports in your country.
Want to submit crypto tax returns error-free? Check our Full Service in the US.
CoinTracking also offers a full service for US traders. A CoinTracking expert from Polygon Advisory Group, a leading crypto tax firm in the US, will review your account, fix any errors, and ensure you submit your tax returns error-free.
This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 25+ AMA crypto tax reports for free.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.