The world of cryptocurrency has exploded in demand during the last decade. What started as an alternative, decentralized method of transacting has now become a global investment trend, with investors generating significant capital gain from their investments.
Now that we have settled into the crypto industry, Uncle Sam and his taxmen are heavily monitoring the crypto industry to verify users are meeting the reporting and taxation standards set by authorities. The IRS, or the Internal Revenue Service in the United States, has made it clear in Notice 2014-21, 2014-16 IRB 938PDF that all profits and gains from trading cryptocurrencies will be taxed.
Binance is currently the leading crypto exchange, with over $6.2 billion worth of assets being traded on the platform daily. As a law-abiding US citizen, you would want to know if Binance reports to the IRS. We have done the research for you and have all the information related to whether Binance reports to the IRS.
Crypto Taxation Basics
When it comes to crypto transactions, the general rule is that they are subject to taxation, just like any other financial activity. The IRS treats cryptocurrencies as property rather than currency, meaning that the tax rules that apply to property transactions also apply to crypto.
Crypto Taxation for the Average Investor
So, what does this mean for you? When you sell or exchange your cryptocurrency, you may trigger a taxable event. This means you could owe taxes on any gains or losses you made during that transaction. The key factor here is the capital gains tax, which is applied to the profit you make from selling or trading crypto.
If you held your cryptocurrency for less than a year before selling it, any gains will be considered short-term and will be taxed at your ordinary income tax rate. On the other hand, if you hold it for more than a year, those gains will be considered long-term and may be subject to capital gains tax rates, depending on your income.
IRS’s Stance on Cryptocurrency
Now, let's talk about the IRS's stance on cryptocurrency. The IRS has been actively working on providing guidelines for crypto taxation. In 2014, they issued Notice 2014-21, which stated that virtual currency should be treated as property for federal tax purposes. This means that the general tax principles applicable to property transactions also apply to cryptocurrency transactions.
The IRS has also been cracking down on crypto tax evasion. They have implemented measures to track cryptocurrency transactions and have made it clear that taxpayers are required to report their crypto activities accurately on their tax returns. Failure to comply with these rules may result in severe penalties.
As per our research and understanding, penalties and fines for failure to pay crypto taxation can amount to almost 75% of the unpaid amount (up to $100,000) and five years in prison.
Binance's Approach to Tax Reporting
Binance, one of the popular cryptocurrency exchanges, has taken steps to assist its users with tax reporting. While Binance does not provide direct tax advice, they offer various tools and features to help users track and organize their transactions.
Explanation of Binance's Policy on Tax Reporting
Binance US has a clear affirmatory policy when it comes to reporting taxes to the IRS. During our experience with the exchange, we noticed that Form 1099-MISC was handed over to all members that made over $600 through capital gain or through other means. We will discuss the form and its application in greater detail later in this article.
As tax regulations and requirements vary across jurisdictions, Binance encourages users to consult with tax professionals or advisors to ensure compliance with their tax obligations. It's essential to stay informed about any changes in tax laws and regulations that may affect your cryptocurrency transactions and reporting.
Tools for Tracking Transactions on Binance
When it comes to tracking tax records, the "Transaction History" feature on the Binance platform allows users to access their transaction records, including trades, deposits, and withdrawals. This information can be exported in CSV format, which can be useful for tax reporting purposes.
Additionally, Binance has introduced a "Tax Reporting Tool" to help users generate reports related to their transaction history. This tool is designed to provide users with a summary of their trading activities, including important details like profits, losses, and fees incurred.
However, it's important to note that the accuracy of the generated reports may depend on the completeness and accuracy of the user's transaction history on the platform.
Does Binance Report to the IRS?
The common question among users of Binance and cryptocurrency exchanges, in general, is whether they report to the IRS or not. The short and definite answer to the question is a resounding yes.
All users who earn more than $600 on Binance, including referrals, capital gains, and other programs, will receive a US 1000 form. A copy of this form is sent to the IRS as well, including the user's name, address, amount of income they have earned, and their tax identification number.
Besides a US 1000 form, users on Binance are also required to fill in and submit Form Sch D (Form 1040). The Form 1040 applies to all different gains and losses made on the platform.
Capital gain and loss
You can use your transaction history on Binance to generate a comprehensive gain/loss report. You can also use an external service by the name of Token Tax to automatically import all your transactions and data from Binance to generate your tax report. Token Tax integrates with Binance US to make tax reporting easy for all users.
How Binance's International Structure Impacts IRS Regulations
Binance International is the global variant for Binance and does not report taxes to the IRS. Instead, Binance has an appropriate subsidiary site for the United States known as Binance US. Binance US is authorized to operate in the country and reports strictly to the IRS.
Binance US vs. Binance Global: A Comparison
Binance US and Binance Global are two separate cryptocurrency trading platforms offered by the same company, Binance, but they cater to different geographic regions and user bases. Here's a comparison of the two platforms and how they handle tax reporting differently:
Binance US is specifically designed to serve customers in the United States. It complies with US regulations and operates under the oversight of various regulatory bodies at the federal and state levels.
Binance Global is the original version of the platform and caters to a global audience, excluding users from countries with specific regulatory restrictions. It operates with a more global approach and serves users from various regions.
Due to regulatory restrictions in the U.S., Binance US offers a more limited selection of cryptocurrencies compared to Binance Global. Some tokens available on the global platform may not be accessible to users on Binance US.
Binance Global provides a broader range of cryptocurrencies and trading pairs, offering access to more altcoins and niche tokens not available on Binance US.
Tax Reporting Differences:
Binance US provides its users with tax reporting tools, such as 1099 forms, to facilitate tax reporting for US residents. These forms help users to report their capital gains and losses accurately.
Binance Global may not offer the same level of tax reporting assistance as Binance US since it serves a more diverse user base, each subject to different tax laws and regulations.
What This Means for Binance Users
Binance US users must fill up forms detailing their earnings from the platform and where they currently stand. The lack of automatic reporting from the IRS usually means that investors must prepare their own statements identifying losses and gains backed by transaction history from the exchange's vault.
Additionally, Binance users have to ensure that they fill up forms to the best of their knowledge with data to back up their claims. Poor reporting can lead to tax repercussions.
Tips for Binance Users to Stay Compliant
We understand the importance of tax compliance for Binance users, which is why we have come up with a few tips to help them through the conundrum. These tips include:
If you use tax software like Token Tax, you will receive dedicated instructions on how to go about the process.
Binance is one of the most popular crypto exchanges today and has a dedicated exchange for customers in the USA. Binance US, formed in 2019, directly reports to the IRS and covers your capital gains/losses. As traders, investors, and crypto buyers, you should report your taxes on a regular basis and fill up the required forms.
You can view your transactions on Binance to mention your gains/losses to the best of your abilities and to not miss out on any important information. We hope that the information in this article has been helpful, but please note that this is general information only and not tax, legal, or financial advice. You should consult with a tax professional for advice specific to your circumstances.