Liquidity transactions are treated as taxable by default. But, you can configure your settings to align with your individual tax situation.
For an in-depth guide about liquidity transactions:
How to Change the Default Tax Treatment for Liquidity Transactions to Non-Taxable
To change the tax treatment of transactions categorized as Add Liquidity or Remove Liquidity from the default as taxable events to non-taxable:
- Navigate to the Settings page and click the Tax tab
- Scroll down to 'Treat liquidity pool transactions as non-taxable' and click the toggle to On
- When configuring this setting, you will be asked for an effective start date. Any transactions marked as 'Add liquidity' or 'Remove liquidity' after this date will not be treated as taxable events.
- The default date is set based on the user's country's tax year. For example, a US user configuring this setting on April 15, 2023, would see the option to set the effective date as January 1, 2023, as the US tax year runs from January 1 to December 31.
Turning Off the 'Treat liquidity pool transactions as non-taxable' Setting
You can choose to turn off the non-taxable setting, and provide an end date if needed, at any time.
Other Considerations for Liquidy Transactions Tax Treatment
- If a transaction is tagged as non-taxable but occurs before the effective non-taxable date, it will be treated as a taxable event.
- Users have the option to manually override the tax treatment for specific transactions to cater to unique situations or to comply with past tax filings.