Ethereum Taxes
Smart contracts, staking, DeFi, and gas fees—here's how to navigate Ethereum's unique tax landscape.
Quick Navigation
Why Ethereum Taxes Matter
Ethereum's shift to proof-of-stake (hello, ETH 2.0 and the Merge!) changed the game, making staking a big deal for taxes. The IRS still sees ETH as property, but activities like earning staking rewards or paying gas fees add unique layers.
Skip the details, and you might owe more than expected—or worse, trigger an audit. With 2025's new reporting requirements, exchanges are sharing way more data with the IRS, so accuracy pays off big time.
Quick Fact: Staking
Staking rewards count as ordinary income when you receive them, taxed at your regular rate (up to 37%). Then, when you sell those rewards later, that's a separate capital gains event on top.
Who This Hits:
Stakers (solo or pooled), DeFi yield farmers, NFT creators and flippers, or anyone grinding through high gas fees on the network. If you're deep in the Ethereum ecosystem, you've got some tax homework.
Ethereum-Specific Tax Events
Beyond the basics in our overview, Ethereum's ecosystem brings unique wrinkles—smart contracts, DeFi, and layer-2 action.
Pro Tip for Ethereum
Log every single transaction, including gas fees and smart contract interactions. Ethereum's busy chain means tons of data to track. Use tools that auto-import from Etherscan—your future self will thank you.
Calculating Gains and Losses for Ethereum
Core rules apply like Bitcoin, but staking and gas fees tweak the math significantly.
Cost Basis Adjustments
Regular purchases: Price paid + gas fees = your basis
Staking rewards: Basis is the income value you reported when received
DeFi yields: Same as staking—income value = basis
Holding Periods
Over 1 year: 0-20% long-term rates
Under 1 year: 10-37% short-term (ordinary income) rates
For staking rewards, holding period starts when you receive them, not when your original ETH stake started.
Complete Staking Example
January 2024: Buy 1 ETH for $2,000 + $50 gas
March 2024: Stake and earn 0.05 ETH worth $150
October 2025: Sell all 1.05 ETH for $3,500 total
Tax Calculation:
1. Report $150 ordinary income (March 2024 staking reward)
2. Original 1 ETH: Basis $2,050 → Sale $3,333 = $1,283 long-term gain
3. Staked 0.05 ETH: Basis $150 → Sale $167 = $17 long-term gain
Total taxes: $150 at ordinary rates (up to 37%) + $1,300 at long-term rates (likely 15%)
Reporting Ethereum on Your Taxes
Same basic drill as Bitcoin, but you'll need to flag staking as income and potentially track hundreds of transactions.
Forms You'll Need
•Schedule D & Form 8949: All ETH sales, trades, NFT sales, and DeFi swaps
•Schedule 1: Staking rewards, DeFi yield, liquidity pool fees as "other income"
•Form 1099-DA (New 2025): Your exchange will send this for ETH sales—verify their numbers!
•Schedule C (maybe): If DeFi/staking is a business activity, you can deduct gas fees and other expenses here
Business vs. Hobby
If you're actively running DeFi protocols, minting NFTs regularly, or staking at scale, you might qualify as a business. This lets you deduct all those gas fees on Schedule C instead of just adjusting basis. The tradeoff? Self-employment tax. Your CPA can help decide which treatment is better for you.
2025 Updates for Ethereum Taxes
The IRS is getting more sophisticated about crypto, especially with Ethereum's complex ecosystem.
Broker Reporting Expanded
Exchanges must report ETH sales proceeds via Form 1099-DA. This includes centralized staking through platforms like Coinbase or Kraken. DeFi transactions done through your own wallet? Still your responsibility to track.
Staking Guidance Clarified
The IRS has affirmed that staking rewards are ordinary income when received, not when you can withdraw them. This settled a long debate after the Shanghai upgrade.
There was a court case (Jarrett v. US) where a couple argued they shouldn't be taxed until they could access staked ETH. The IRS disagreed, and that's now the official stance.
DeFi Under the Microscope
The IRS is paying close attention to DeFi protocols, especially around unreported yield farming and liquidity pool income. Some platforms are starting to issue 1099s voluntarily—expect this to expand.
Tools, Tips, and Common Pitfalls
Ethereum's complexity demands good tools and awareness of common mistakes.
Ethereum-Friendly Software
These tools handle Ethereum's unique quirks—gas fees, staking, DeFi, NFTs:
TokenTax
Great gas tracking
Koinly
Staking support
CoinTracker
DeFi integrations
CoinLedger
NFT tracking
Common Ethereum Mistakes
✗Ignoring gas fees: Not adjusting cost basis for gas can inflate your tax bill significantly
✗Treating staking as non-taxable: It's income, period. Report it when received
✗Missing DeFi yields: That Aave interest or Curve LP fees? All taxable income
✗NFT basis mistakes: Forgetting to include gas paid when minting or buying
✗Layer-2 confusion: Transactions on Arbitrum, Optimism, etc. are still taxable, even if gas is minimal
Tax-Saving Strategies for Ethereum
•Stake long-term: Hold staking rewards over 1 year before selling for better rates
•Deduct business gas: If you qualify, deduct all those fees instead of just adjusting basis
•Harvest DeFi losses: Down bad on that DeFi token? Sell to offset ETH gains
•Donate appreciated NFTs: Give to charity at market value, avoid capital gains
•Use layer-2 strategically: Lower gas means more net proceeds when you sell
When to Call an Ethereum Tax Pro
Ethereum's complexity—staking, DeFi, NFTs, gas—makes it one of the toughest to handle solo. Get professional help when:
•You're actively using DeFi (50+ transactions/year across protocols)
•You're staking significant amounts and earning regular rewards
•You're creating or trading NFTs professionally
•You need to determine if your activity is business vs. hobby
•You have six-figure gains or complex cost basis situations
A crypto-specialized CPA costs $1,000-$5,000+ for complex Ethereum situations, but they can often save you multiples of that through proper deductions, loss harvesting, and avoiding costly mistakes.
Wrapping It Up
Ethereum taxes ramp up the complexity with staking rewards, gas fee adjustments, DeFi yields, and NFT transactions—but solid tracking and the right tools keep you ahead of the game.
This builds on our Crypto Taxes Overview and complements our Bitcoin Taxes guide. Got questions about specific DeFi protocols or staking setups? Let us know below.
Remember: This is educational guidance to help you understand Ethereum-specific tax issues—not personalized advice. Team up with a crypto-savvy tax expert for your specific situation.