Ethereum is more complex than Bitcoin. Much more complex. With ERC-20 tokens, DeFi protocols, staking rewards, and wrapped assets, there's more that can go wrong — and more opportunities to optimize your tax situation.

Ethereum's Account Model

Unlike Bitcoin's UTXO model, Ethereum uses a simple account model. Your balance is just a number. When you send ETH, it debits your account and credits another.

This makes Ethereum taxes somewhat simpler than Bitcoin — you don't need to track individual UTXOs. But the complexity comes from everything built *on* Ethereum.

Gas Fees: The Hidden Tax Complexity

When you pay gas, here's how it works:

• Failed transactions — Gas is still spent, but no taxable event occurs
• Refunded gas — Reduces your cost basis (or creates a small loss)
• Gas spent on swaps — Added to cost basis of tokens received

ERC-20 Tokens: Same Rules Apply

Every ERC-20 token follows the same tax rules as ETH:

• Buying — Establishes cost basis (not taxable)
• Selling — Capital gain/loss calculation
• Trading — Two events: sell token A, buy token B
• Receiving airdrops — Ordinary income at FMV

Wrapped Ethereum: WETH, cbETH, stETH

Common wrapped assets on Ethereum:

• WETH (Wrapped Ether) — ERC-20 version of ETH
• cbETH (Coinbase Wrapped Staked ETH) — LSD token
• stETH (Lido Staked Ether) — LSD token
• rETH (Rocket Pool ETH) — LSD token
• weETH (Wrapped eETH) — From EtherFi

Ethereum Staking: Post-Merge

Since The Merge (September 2022), Ethereum uses Proof of Stake. Staking rewards are taxed per Revenue Ruling 2023-14:

1. When received — Ordinary income at fair market value
2. Cost basis — That same FMV becomes your basis
3. When you sell — Capital gain/loss from that basis

DeFi on Ethereum: The Tax Minefield

DeFi is where Ethereum taxes get complicated. Every action can be a taxable event:

Common DeFi Scenarios

Uniswap / SushiSwap

When you swap Token A for Token B, you're selling Token A and buying Token B. Both are taxable events. Your cost basis in Token B is the USD value of Token A at the time of swap.

Aave / Compound

Depositing collateral is generally not taxable. Earning yield is ordinary income.Withdrawing may trigger gain/loss if the value changed.

Lido / Rocket Pool

Staking ETH for stETH/rETH: Your ETH becomes a yield-bearing token. The staking rewards (in the form of more stETH) are ordinary income. The LST tokens themselves? Grey area — most treat them as non-taxable until you sell or exit staking.

NFTs on Ethereum

ERC-721 and ERC-1155 tokens (NFTs) follow the same rules as other ERC-20s:

• Minting — Cost basis = what you paid (including gas)
• Selling — Capital gain/loss = sale price - cost basis
• Royalty payments — Deductible as expense

Ethereum Name Service (ENS)

Buying an ENS domain has interesting tax implications:

• Purchase — Capital expense (amortize over time)
• Renewal fees — Generally deductible as expense
• Selling ENS domain — Capital gains if sold for profit

How Arthur Labs Handles Ethereum

• Full ERC-20 token tracking via contract address
• Gas fee allocation to transaction cost basis
• Staking reward classification (Rev. Rul. 2023-14)
• DeFi protocol detection (Uniswap, Aave, Lido, etc.)
• Wrapped token handling (WETH = ETH)
• Historical price at exact transaction timestamp