Chainlink is a decentralized blockchain Oracle network that provides off-blockchain external data to on-blockchain smart contracts, while LINK tokens are the cryptocurrency used to pay Chainlink network operators for their services in maintaining and operating the network. But if you’re trading or earning LINK tokens, you might have a surprise tax bill in store. Don't worry, Koinly can help you calculate taxes for 400,000+ ERC-20 tokens, including LINK. Here's how.
LINK tokens are taxable - but the tax you’ll pay depends on your transactions and where you live. You can learn more in our crypto tax guides. Broadly speaking, two taxes may apply to your LINK transactions:
The IRS has shown increasing interest in all kinds of crypto investments and has dedicated agents to tackle crypto tax evasion by tracking and investigating cryptocurrency transactions and investments. So how do they do it?
For starters, blockchains - excluding specific outliers like Monero - are public ledgers. All you need is an address and anyone can search through the transactions made relating to that address - including the IRS. All the IRS then needs to do is link you to a given address.
While crypto is often thought of as anonymous, the reality is is more like pseudonymous. The IRS has dedicated agents trained to collect user data relating to cryptocurrency transactions to ensure tax compliance and also has a variety of methods to collect user data from crypto businesses.
One of the main methods the IRS uses is John Doe summons. These summonses compel crypto exchanges to share customer data, potentially including personal data including wallet addresses that users have transferred assets to.
As well as this, many centralized crypto exchanges collect KYC data and issue 1099 forms - to both users and the IRS. So if you’re selling or trading LINK on centralized exchanges, there’s a chance the IRS is aware of your transactions.
Learn more about how the IRS tracks crypto, here.
Preparing your crypto tax documents depends on where you live and your tax office’s reporting requirements, but generally speaking, you’ll report any capital gains, losses, or income from LINK in your annual tax return.
So you’ll first need to calculate all this. You’ll need to identify each taxable transaction - so each time you sold, swapped, or earned LINK, then calculate your capital gains, losses, and the fair market value of any income in your fiat currency on the day you received it.
For active investors, particularly validators with regular LINK income, it’s time-consuming. This is why most investors opt to use a crypto tax calculator like Koinly. Koinly can calculate your gains, losses, and income for more than 450,000 ERC-20 tokens - including LINK.
All you need to do is connect your wallet to Koinly and it’ll do the rest. Here’s how.
To import your LINK transactions into Koinly, you’ll need to connect each wallet you use to interact with LINK to Koinly using your public address.
LINK is a multi-chain token, that exists on Ethereum, Binance Smart Chain, Arbitrum, Polygon, and more. This means you’ll need to add your public address to Koinly for each blockchain you interact with LINK on, and each wallet on that blockchain.
You can find steps on how to connect a variety of popular wallets to Koinly on our integration pages, but here’s an example of how it generally works.
1. Remember, you’ll need to do this for every wallet and blockchain you use to interact with LINK (and any other tokens!) in order to calculate your crypto taxes correctly.
2. It’s really helpful to name your wallets when you’re adding them to Koinly. This can help you easily navigate your transactions in Koinly later on.
3. You may also be able to upload your transaction history to Koinly as a CSV file instead of connecting using your public address if you prefer, but this depends on the wallet you’re using. You can search for your wallet on our integration pages to find out more about how to get a CSV file from your wallet.
If you have any issues setting up Koinly or importing data, there’s plenty of help at hand:
Sign up free today to calculate your LINK taxes
Chainlink is a decentralized blockchain oracle network. In layman's terms, Chainlink is a network of nodes (a computer connected to a given network) that provide information from external off-blockchain sources to smart contracts on-blockchain, using oracles, which are a kind of third-party service connecting smart contracts to the external world.
LINK tokens are the cryptocurrency used to pay validators for their services on the network. But you can also buy, sell, trade, stake, and delegate LINK tokens as well.
You can buy LINK tokens on centralized exchanges like Binance and Coinbase, and swap other tokens for LINK tokens on decentralized exchanges like Uniswap. As well as this, you can earn LINK tokens by running a validator node in the Chainlink network, or delegating your LINK tokens to a validator.
Blockchains have many use cases outside crypto - particularly blockchains with smart contract capability. However, to execute commands, many smart contracts need accurate and reliable external data that isn't stored on the blockchain. Chainlink looks to solve this issue by using oracles to supply smart contracts with accurate, necessary external data in order to execute actions.
LINK is a popular investment due to the utility the Chainlink project provides now and in the future. However, as with all cryptocurrencies, there are risks, including price volatility. You should always DYOR before investing to ensure you understand the risks involved.
Chainlink isn't a blockchain - it's a blockchain-based decentralized oracle network. The LINK token is interoperable with several blockchains including Ethereum, Binance Smart Chain, Polygon, and Arbitrum.
LINK is a top 20 cryptocurrency and a popular investment, but as with all cryptocurrencies there is a risk of price volatility and you should always follow best practices to store your crypto safely.
You can delegate LINK tokens by using a Ledger, MetaMask, or another self-custodial wallet and connecting to the Chainlink staking dashboard to stake your LINK tokens and earn rewards.
Yes. You’ll need to report any capital gains, losses, or income relating to your LINK tokens and other crypto investments to the IRS as part of your annual tax return. If you don't you may face severe penalties.
Most tax offices haven’t released specific guidance on staking rewards. However, a lack of guidance doesn’t mean they aren’t taxable. Under current guidance, most tax offices like the IRS, view activities like mining rewards as additional income and subject them to Income Tax upon receipt. As such, it’s reasonable to assume that staking rewards, whether that’s rewards from participating as a node operator or staking rewards from delegating your LINK tokens would be subject to Income Tax upon receipt, as well as Capital Gains Tax if you later dispose of your LINK tokens by selling or swapping them.