Can a DAO be taxed?

Asked 2 years ago

If a DAO is part of decentralized finance and doesn't use any centralized banking systems, how do the liquidity pools and crypto investors get taxed by the constitution?

Walter Cooper

Thursday, April 07, 2022

Crypto paid from a DAO wallet for goods or services qualifies for income taxes in the country where the sale or activity was made. For instance, when a MakerDAO user invests in a project, the allied DAO credits those funds into the contributing developer’s address. The developer then claims the funds as income taxable in the state or country where they operate. Also, gains made from the sale of governance tokens are subject to capital gains taxes. Nevertheless, no country has classified DAOs as taxable entities themselves so far.

Josiah Makori

Josiah Makori

Tuesday, July 19, 2022

Currently, the International Revenue Service (IRS) has not set out clear guidelines on how to tax DAOs. However, tax professionals advise that any organization consisting of members from different nations and making profits can be taxed.

In this regard, if you are a DAO liquidity provider (LP) or investor, it’s logical to assume that your investments will be taxed like other digital assets. That implies they will likely be subjected to income and capital gains taxes.

If you are airdropped some DAO tokens, you should file your earnings as income based on their market value when you receive them. Likewise, when you sell your DAO assets, you should file for capital gain or loss based on the value of your assets since you initially acquired them.

If you receive DAO rewards, then you should report them as personal income depending on their market value when you receive them.

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