Detailed Instructions

Begin by identifying every Ethereum Virtual Machine (EVM) wallet address you have used for DeFi activities. For each address, visit the corresponding block explorer (e.g., Etherscan for Ethereum, Arbiscan for Arbitrum). Navigate to the address page and locate the "Export" or "Download CSV" button, typically found near the transaction list. Ensure you select the correct date range to cover the entire tax year and export the data in CSV format. This file will contain a raw log of every transaction, including timestamps, transaction hashes, from/to addresses, and gas fees.

• Sub-step 1: For your primary Ethereum wallet 0x742d35Cc6634C0532925a3b844Bc9e..., go to etherscan.io/address/[YOUR_ADDRESS] and click "Export All Transactions."
• Sub-step 2: Repeat this process for each of your wallet addresses on other chains like Polygon (Polygonscan), Avalanche (Snowtrace), and Binance Smart Chain (Bscscan).
• Sub-step 3: Consolidate all downloaded CSV files into a single master folder, naming them clearly by network and address (e.g., eth_main_0x123..._2023.csv).

Tip: For token transfers, you may need to use the "Token Transfers" tab on Etherscan and export that data separately to capture ERC-20 activity.

Detailed Instructions

Open your consolidated CSV files in a spreadsheet program. You must now manually tag and categorize each transaction line. The key is to identify transactions that interact with smart contract addresses of known DeFi protocols. Look for transactions where the "To" address is not a simple wallet but a contract. Use the transaction hash to investigate further on the block explorer. Focus on identifying core taxable events: Token Swaps (e.g., on Uniswap, SushiSwap), Liquidity Pool Deposits/Withdrawals (adding/removing liquidity), and Staking Rewards or Yield Farming Distributions.

• Sub-step 1: Create new columns in your spreadsheet: "Protocol," "Action," "Token In," "Token Out," "Amount In," "Amount Out," "USD Value at Time."
• Sub-step 2: For a swap, you'll need the exact token amounts. Decode the transaction input data on Etherscan. For example, a Uniswap V2 swap might show a function call like swapExactTokensForTokens.
• Sub-step 3: Use the transaction's block number and a historical price API (like CoinGecko's) to find the Fair Market Value (FMV) in USD for each token at the time of the transaction. Record this value.

Tip: Bookmark the verified contract addresses for major protocols (e.g., Uniswap V2 Router: 0x7a250d5630B4cF539739dF2C5dAcb4c659F2488D) to quickly identify interactions.

Detailed Instructions

For every token you sold, traded, or otherwise disposed of, you must calculate your cost basis and the resulting capital gain or loss. This requires tracking the acquisition date and cost of every token you've ever bought or received. Organize a separate ledger for each token, listing every inbound transaction (buy, reward, airdrop) as a separate lot with its date, quantity, and cost basis in USD. When a disposal occurs, you must select which lot(s) you are selling using an accounting method like First-In, First-Out (FIFO).

• Sub-step 1: For a swap of 1 ETH for 3000 USDC, first identify the cost basis of the 1 ETH you spent. If your ETH ledger shows you bought 0.5 ETH for $1,500 and later bought 0.5 ETH for $1,800, using FIFO means your cost basis is $1,500 + $1,800 = $3,300.
• Sub-step 2: Calculate the proceeds. If 1 ETH was worth $3,200 at the time of the swap, your proceeds are $3,200.
• Sub-step 3: Calculate the gain/loss: Proceeds ($3,200) - Cost Basis ($3,300) = Capital Loss of $100. Record this for your tax forms.

Tip: Airdrops and hard-forked tokens generally have a cost basis of $0 at the time of receipt, making their full FMV at the time of a later sale a taxable gain.

Detailed Instructions

With all your transactions categorized and gains/losses calculated, you must now map this data to official tax forms. In the U.S., this primarily involves IRS Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses). Create a new worksheet in your spreadsheet that mirrors the columns of Form 8949: Description of Property, Date Acquired, Date Sold, Proceeds, Cost Basis, and Gain/Loss. You will need to create a separate line item for each individual taxable event (e.g., each swap, each liquidity withdrawal).

• Sub-step 1: For each line, provide a clear description, e.g., "1.5 ETH swapped for 4500 USDC via Uniswap V3."
• Sub-step 2: Sum all short-term gains/losses (assets held ≤1 year) and all long-term gains/losses (assets held >1 year) into separate totals.
• Sub-step 3: Transfer these final totals to the corresponding lines on Schedule D. Don't forget to also report any Ordinary Income from staking rewards or interest on a separate form, such as Schedule 1 (Additional Income).

Tip: Keep your detailed calculation spreadsheet as an audit trail. The IRS may request documentation supporting the figures on your Form 8949, and your meticulously prepared ledger will serve as that proof.

Detailed Instructions

Transaction aggregation is the foundational step. You must compile a complete history of your interactions with decentralized exchanges (DEXs), lending protocols, and yield farms. This data is stored on the blockchain but is scattered across multiple addresses and networks.

• Sub-step 1: Identify all wallets and addresses. Use your wallet's recovery phrase to ensure you don't miss any associated addresses. For MetaMask, you can derive addresses using a tool like @ethersproject/hdnode.
• Sub-step 2: Export transaction histories. Use blockchain explorers (Etherscan, BscScan) for each network (Ethereum, Polygon, Arbitrum) your wallets have been active on. Download CSV files for each address.
• Sub-step 3: Use portfolio trackers for automation. Services like Zerion, Zapper, or DeBank can automatically pull this data via your public wallet address (e.g., 0x742d35Cc6634C0532925a3b844Bc9e...).

Tip: Manually verify automated data pulls against explorer exports to catch any missed transactions, especially internal transfers or contract interactions.

Detailed Instructions

Transaction classification determines how each event is taxed. The key categories are income (staking rewards, liquidity mining yields), capital gains/losses (swaps, sales), and cost basis adjustments (LP token deposits/withdrawals).

• Sub-step 1: Label income events. Identify all deposits into liquidity pools and staking contracts. The rewards you receive are taxable income at their fair market value when received. For example, receiving 10 AAVE tokens from staking.
• Sub-step 2: Identify swaps and sales. Every token-to-token swap (e.g., swapping 1 ETH for 3000 USDC on Uniswap) is a taxable disposal of the first asset. You must calculate the cost basis of the ETH and the USD value of the USDC received.
• Sub-step 3: Handle complex LP transactions. Adding/removing liquidity involves depositing/withdrawing multiple assets, which changes your cost basis. Use the specific identification method to track which assets are being disposed of.

Tip: Use a consistent methodology (like FIFO) for cost basis calculation across all transactions to avoid discrepancies.

Detailed Instructions

Cost basis calculation is critical for determining capital gains or losses. The formula is: Gain/Loss = Fair Market Value at Disposal - Cost Basis. You need accurate price data for the timestamp of every transaction.

• Sub-step 1: Source historical price data. Use APIs from CoinGecko or CoinMarketCap. For programmatic calculation, you might fetch the price of ETH on January 15, 2023:

pythonCopy
import requests
def get_historical_price(coin_id, date):
    url = f"https://api.coingecko.com/api/v3/coins/{coin_id}/history?date={date}"
    response = requests.get(url)
    data = response.json()
    return data['market_data']['current_price']['usd']

• Sub-step 2: Apply the calculation to each swap. For the earlier example of swapping 1 ETH (bought for $1,800) when ETH is worth $3,000, your taxable gain is $3,000 - $1,800 = $1,200.
• Sub-step 3: Account for gas fees. Gas fees paid in the native token (like ETH) for a transaction that acquires a new investment (e.g., buying a token) can be added to that asset's cost basis.

Tip: For high-frequency trading, consider using tax software (Koinly, CoinTracker) that automates these calculations using your aggregated and classified data.

Detailed Instructions

Report reconciliation ensures your calculated totals match your actual wallet balances and prepares data for filing. The goal is to generate forms like the IRS Form 8949 and Schedule D in the US, or their equivalents in other jurisdictions.

• Sub-step 1: Perform a wallet balance reconciliation. Using your transaction list, calculate the expected balance of each token in your wallet as of December 31st. Compare this to your actual wallet balance. Any discrepancy indicates a missing transaction.
• Sub-step 2: Generate capital gains reports. Your tax software or spreadsheet should output a summary of short-term and long-term gains, categorized by asset. Verify that the net capital gain figure is accurate.
• Sub-step 3: Report DeFi income. Compile all yield, rewards, and airdrops into an income report. This is often reported as "Other Income" on tax forms. For example, $500 worth of COMP tokens earned from lending on Compound.
• Sub-step 4: Export for your accountant or tax software. Most platforms allow export to a .csv or .xlsx file, or direct integration with tax filing software like TurboTax.

Tip: Maintain detailed records of your calculations and source data. Tax authorities may request proof of your cost basis and transaction history during an audit.