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Arnold the Tech Enthusiast: Tax Optimizer Case Study

Arnold is a 28-year-old programmer and a crypto enthusiast – one of the rare people interested more in blockchain technology than in investments. He was programming smart contracts on Ethereum before any of his friends had even heard of crypto. 

Arnold is always on the lookout for the next big thing and is among the first people to try out a new platform. This also makes him a nightmare in the eyes of his accountant who doesn’t understand any of Arnold’s complex DeFi trades. 

In 2020, Arnold takes some of his ETH and deposits it into a Maker Vault so he can generate DAI. He then goes to Compound where he lends out the DAI that he just received to earn interest and gets cDAI. He also receives COMP regularly for using the Compound protocol. 

In late 2020, Arnold receives 400 UNI for using the Uniswap exchange and 220 MIR for HODLing the UNI. He also provides liquidity on a DEX and stakes his LP tokens for additional yield. 

In 2021, Arnold needs an exit strategy and wants to sell his positions. Given his tax situation, he knows he could save significantly if he only were to realize long-term gains while avoiding short-term gains. 

What could he sell and when?

Arnold sets up his Accointing account and links all of his wallets and exchanges with the portfolio tracking tool. He can now use the Accointing Tax Optimizer tool to see his current long-term gains and when he can expect his short-term gains to turn into long-term ones. 

Arnold manages to create a plan for exiting all of his positions only incurring long-term capital gains. All of his long-term gains total $33,222. Arnold’s only other income are his wages of $60,000.

Since he has many different coins, he could have easily sold some of his positions while they were still considered short-term gains, in which case his tax on his crypto gains would be $7,304. 

By using the Tax Optimizer and ensuring all his gains are long-term, Arnold has managed to reduce his tax on his crypto gains to $4,983. By properly and timely planning when to sell, he managed to save $2,321.

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