Are you a crypto investor or a Web3 business transacting in stablecoins? If so, it’s important to understand the tax implications surrounding these transactions. Many assume stablecoins, because they are pegged to a currency like the US dollar, have minimal or no tax consequences. However, the reality is quite different. In this blog post, we will dive into the essential tax considerations for stablecoins, helping you stay compliant and avoid potential issues with the IRS.

What is a Stablecoin?

A stablecoin is a type of cryptocurrency that is pegged to a stable asset, often a currency or commodity. The most common stablecoins today are those tied to the US dollar, such as USDC, USDT, and DAI. The primary function of a stablecoin is to provide a stable store of value in a volatile crypto market.

Although stablecoins aim to maintain a 1:1 ratio with the asset they’re pegged to, it’s important to note that they are still classified as cryptocurrencies. This means that, in the eyes of the IRS, transactions involving stablecoins are subject to the same rules that apply to other cryptocurrencies. Let’s explore these tax rules in more detail.

Reporting Stablecoin Transactions

One of the most common questions is how stablecoin transactions should be reported on your tax return. Even though stablecoins are designed to maintain their value, the IRS still considers them taxable when you:

• Exchange one stablecoin for another
• Convert a stablecoin into fiat currency (e.g., US dollars)
• Swap a stablecoin for another cryptocurrency like Bitcoin or Ethereum

These transactions are treated as taxable events. The IRS requires that you report gains or losses from these exchanges on Form 8949 and Schedule D. Each transaction must be documented, and the difference between the purchase price (cost basis) and the sale price (proceeds) determines whether you owe capital gains tax.

While the capital gains from swapping one stablecoin for another may be minimal or even negligible due to their pegged value, you must still track and report these transactions. Failing to do so can lead to compliance issues in the future, especially as the IRS increases its scrutiny of crypto transactions.

Taxable Events Involving Stablecoins

1. Earning Income in Stablecoins

If you earn income in stablecoins—whether through airdrops, staking rewards, or business transactions—this income must be reported as taxable income. The value of the stablecoin at the time of receipt is treated as ordinary income and must be included on your tax return.

For businesses transacting in stablecoins, income from services or products paid in stablecoins must be recorded as revenue. Depending on your entity structure (individual, partnership, or corporation), this will be reported on the relevant tax forms.

2. Buying Goods and Services with Stablecoins

When you use stablecoins to purchase goods or services, this transaction is also considered a taxable event. Similar to other cryptocurrency transactions, spending stablecoins can trigger capital gains tax, even if the difference in value is minimal. You must calculate the capital gains or losses from the time you acquired the stablecoin to the time you spent it.

3. Gifting Stablecoins

Gifting stablecoins also comes with tax implications. As of 2024, you can gift up to $18,000 worth of stablecoins per recipient per year without triggering gift tax reporting requirements. If you exceed this limit, you must file a gift tax return.

The Importance of Tracking Stablecoin Transactions

The key to staying compliant with the IRS is thorough record-keeping. While many stablecoin transactions may seem insignificant from a tax perspective, they still need to be tracked, reported, and filed correctly. Web3 businesses, in particular, should adopt robust accounting practices to monitor on-chain stablecoin transactions. This includes setting up an accounting system that captures each transaction at the sub-ledger level and consolidates this information into financial statements.

For individual crypto investors, leveraging crypto accounting software is a must. These tools can help consolidate your transactions across multiple wallets and exchanges, categorize them, and ensure they are reconciled properly for tax purposes. By proactively managing your stablecoin transactions, you can avoid unexpected tax liabilities.

Depreciation and Losses: What Happens When Stablecoins Depeg?

While stablecoins are designed to maintain a stable value, there have been instances where certain stablecoins have “depegged” from their underlying asset, leading to a loss in value. In such cases, if you transact in a depegged stablecoin and realize a loss, this can be reported as a capital loss.

However, the facts and circumstances surrounding each case will vary, so it’s essential to scrutinize these events closely. In general, any loss realized from transacting in depegged stablecoins can reduce your capital gains tax liability.

Sales Tax Implications

Another area that is often overlooked in stablecoin transactions is sales tax exposure. If you’re a business selling goods or services and accepting stablecoins as payment, you may be subject to sales tax requirements. Many businesses in the Web3 space are not currently collecting or remitting sales taxes on these transactions, which could lead to compliance issues in the future.

Sales tax rules vary by jurisdiction, so it’s essential to understand your local tax laws and ensure you’re collecting and remitting sales tax where required.

IRS Reporting Requirements: What’s Coming in 2025?

Looking ahead, it’s important to note that starting in 2025, there will be increased third-party reporting requirements for crypto transactions, including those involving stablecoins. This means that exchanges and other third-party platforms will begin reporting more detailed information about your crypto transactions directly to the IRS.

If you fail to report these transactions on your tax return, the discrepancy between what the IRS knows and what you’ve reported could trigger a tax audit or result in penalties and interest. To avoid these issues, ensure you’re accurately tracking and reporting all stablecoin transactions now, even if the tax consequences are minor.

Conclusion: Partner with a Crypto Tax Professional

Navigating the tax landscape for stablecoins and cryptocurrencies can be complex, especially as regulations continue to evolve. Whether you’re a Web3 business or an individual investor, partnering with a crypto-savvy CPA firm can help ensure that your accounting system is set up correctly, your transactions are reported accurately, and your tax liability is minimized.

At Camuso CPA, we specialize in crypto tax accounting and have been working with businesses and investors since 2016. Our team can help you establish a robust accounting system, provide proactive tax advice, and ensure that your tax filings are accurate and compliant with the latest regulations.