PEPE Coin Tax: Is Pepe Tax-Free?

With the rise of meme coins like PEPE in the last weeks, the cryptocurrency landscape has shifted once again. The endearing crypto coins have captured the attention of traders and investors with their promise of significant gains in a short period of time. Meme coins are also highly volatile and should be approached with caution.

What is PEPE Coin? 

PEPE, “the most memeable coin in existence”, is an ERC-20 token on the Ethereum blockchain with a maximum supply of 420,690,000,000,000 tokens. The coin was created as a tribute to the Pepe the Frog internet meme. Like other cryptocurrencies, it can be bought, sold, and traded on various exchanges. 

However, unlike traditional cryptocurrencies like Bitcoin or Ethereum, which have specific uses and functions, meme coins like PEPE are primarily used for trading and speculation. Thanks to its community, the project was able to capitalize on the popularity of meme coins in the last month and establish itself as one of the top meme-based cryptocurrencies.

Who Created PEPE Coin? 

The specific individuals behind the PEPE project are not publicly disclosed. As of today, its founder's identity remains anonymous.

What Does Pepe’s ‘No-tax Policy’ Mean? 

The project boasts “no-tax policy”. This refers to the fact that PEPE does not impose any transaction fees when buying or selling the token, meaning you won’t have to pay any additional funds to the project. The policy is intended to attract a wider audience and expand the user base. However, transacting with PEPE is not tax-free in real life.

Just like with any other crypto asset, you can’t avoid tax. Read on to find out which of your Pepe Coin activities will incur a taxable event. For more detailed information on how the IRS treats cryptocurrencies for tax purposes, check out our regularly updated Definitive US Crypto Tax Guide 2023.

Taxable Pepe Transactions

Receiving PEPE as a Reward is Taxable

Some long-term holders have been awarded PEPE tokens by the project. Receiving these tokens as a reward is subject to income tax. If you later decide to trade or swap your tokens for other cryptocurrencies you will realize a taxable gain or loss. 

Buying or Selling PEPE is Taxable

There are tax implications when buying and selling meme coins. According to the IRS, profits from the sale of cryptocurrencies are considered to be capital gains. This means that you will have to pay taxes on any profits you make. The amount of tax you owe will depend on your filing status, marginal tax rate, and the length of time you held the coin.

Providing Liquidity for PEPE

Although the IRS has not issued specific guidance on the taxation of liquidity pools, a conservative approach will suggest that swapping tokens for LP tokens is considered a taxable event. This means that when you add or remove liquidity to a PEPE pair, this may trigger a taxable event for you. 

The difference in value between the tokens you traded and the LP tokens received determines whether you made a profit or a loss. The original purchase price of your tokens serves as the tax basis. Once you have created an LP token, any rewards you receive will be taxed as income. 

On the other hand, some have argued that these transactions resemble making a deposit, where you expect to receive your original coins back and the LP tokens merely act as a receipt for your deposited assets. However, the presence of impermanent losses in liquidity pools means you don't have complete control over your original coins. Therefore, it’s advisable to consider such transactions as taxable or consult with your tax advisor. 

Non-Taxable Pepe Transactions

Transferring PEPE Coin Between Wallets

Transferring PEPE between your wallets isn’t taxable. Instead, these transfers are categorized as internal transactions and are tax-free. 

Holding PEPE

No, simply holding cryptocurrency, including  PEPE Coin, doesn't incur a taxable event. You’re only required to pay taxes on your cryptocurrency holdings when you sell, trade, or otherwise dispose of them and realize a gain or loss.

Transaction Fees

The IRS has not provided guidance on whether paying gas fees is a taxable event or not. However, transaction fees may impact the cost basis (acquisition price), so it is crucial to properly track and report them when buying PEPE through a decentralized exchange like Uniswap while incurring high gas fees. 

How to File Pepe Coin Taxes?

To calculate your taxes from crypto investing or trading, including PEPE Coin, you’ll need to gather all of your cryptocurrency-related transactions for the year. This includes information such as the date of the transaction, the amount of PEPE you bought or sold, and the price of the token at the time of the transaction. Once you have gathered all of this information, you can then calculate the cost basis manually for each trade or use cryptocurrency tax software in order to simplify the process. 

The amount of tax you owe will depend on your income and the length of time you held the token. If you held it for less than a year, you will be taxed at short-term capital gains rates (which is more likely). Moreover, if you held Pepe for more than a year, you will be taxed at long-term capital gains rates. 

Keep in mind that you must report all of your cryptocurrency transactions on your tax return, use either Form 8949 or Schedule D to report your capital gains and losses from your crypto activity related to $PEPE trading activity. 

Tips for Minimizing PEPE Coin Tax Liability 

By carefully managing your PEPE transactions, you can minimize your tax liability and keep more of your gains.

• Hold your tokens for the long term, this will allow you to benefit from a lower tax rate. 
• Balance your capital gains and losses. If you have other investments that have depreciated in value, you can sell them to generate a capital loss that can be used to offset the capital gains from selling PEPE. It is advisable to use a tax-loss harvesting tool to realize losses in a strategic manner.

How can Crypto Tax Software Help with Your PEPE Coin Taxes?

A reliable crypto tax calculator like Accointing can help you track and manage your Pepe Coin and other crypto transactions. It offers multiple integration methods for exchanges and wallets, allowing you to track all of your PEPE balances or transactions, regardless of whether you executed them using a centralized exchange or a decentralized exchange (DEX). 

Moreover, our crypto tax calculator will provide an accurate calculation of your cost basis and capital gains and losses, precisely determining your tax liability. The platform also offers additional features to help you optimize your taxes and identify tax-loss harvesting opportunities. Sign up for free and quickly generate the necessary tax reports for filing your taxes, or find out more about how Accointing can help with your taxes. 

The information contained in this guide, including any supplemental materials, is for general information purposes and does not constitute financial, investment, legal, or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.