Compound Finance Tax Guide
Crypto Tax Calculator connects to Compound to make filing your taxes easy.
What is Compound?
Compound is a US based decentralised finance (DeFi) protocol for lending and borrowing crypto assets. Simply put, Compound allows you to borrow and lend crypto without a middleman, thus passing on the savings to the user.
When you supply tokens to Compound cTokens are minted, you earn interest by the value of your cTokens appreciating relative to the asset you deposited. So when you want to withdraw your funds your cTokens will be worth the value of your deposit plus any interest earned over the period.
As of August 2020, Compound has over $700 million USD locked in making it one of the largest DeFi protocols in crypto at the moment.
What are the tax implications of using Compound?
As with many crypto transactions there might be tax implications when using the compound protocol. We classify the interest earned on lending/ supplying crypto as interest earned, and any appreciation of token prices as capital gains. It is important to note that in some cases the receipt of a coin might represent assessable income. It is our view that tax agencies will most likely classify yield earning tokens as assessable income regardless of how the method used by the protocol to distribute this reward. However since DeFi is a new space the agencies have not released specific guidance here.
Borrowing on Compound is arguably not subject to any tax as there is no interest or capital gain directly from the transaction.
The benefits of using CTC to compute your Compound taxes
The major challenge with calculating crypto taxes is consolidating all the data into one standard format, this is done automatically through Crypto Tax Calculator. The transactions you do on Compound are just one piece of the puzzle that must be consolidated into your crypto portfolio before reporting to the tax office.
Once Crypto Tax Calculator has standardized all your transactions it calculates the amount of tax you owe, you can report this number to the tax office and use the standardized report as record keeping (also a legal requirement).
How to Import your Compound data to Crypto Tax Calculator?
Crypto Tax Calculator connects can connect to your crypto wallets so all you have to do is enter your public key of any addresses you’ve used with Compound and we do the rest. If you are unsure of transactions you can classify them depending on how you earned the income (lending, staking, mining, yield farming).
