Cryptocurrency Tax Reporting 101 – Binance.US

BAM Trading Services Inc. (“Binance.US”) does not provide tax advice. We recommend contacting a tax professional for your specific tax situation. This guide is for educational purposes only.

At Binance.US, our mission is to empower Americans through education, advocacy, and product innovation to access the wealth of crypto opportunities. We always build for the user - this includes tax reporting. In this guide, we’ll walk you through what is and isn’t taxable, give an overview of the steps you need to take and documentation you might need to provide, and outline how gains and losses may affect your taxes. Our goal is to ensure that both you and Binance.US are compliant with IRS directives.

Are you a U.S. resident who trades cryptocurrency? If so, you may have tax obligations. The Internal Revenue Service (“IRS”) has deemed cryptocurrency to be “property.” Therefore, tax rules that apply to property transactions also apply to cryptocurrencies.

In 2019, the IRS introduced a mandatory check box on Form 1040 U.S. Individual Income Tax Return requiring U.S. taxpayers to answer “yes” or “no” to whether they had any crypto transactions during the year. Binance.US makes answering this requirement easier by providing you with your transaction history available to download. Request a copy HERE. It's an easy, fast, and secure way to view your history of transactions with Binance.US.

How do I know if I owe taxes?

Cryptocurrency taxes are incredibly complex. We recommend auditing your crypto transactions to determine if you may owe taxes. This diligence will pay off in the long run, as it ensures compliance. Let’s walk through some examples:

What could be taxable?

Selling crypto for fiat (cash)
Converting one crypto for another (deemed as the disposition of property)
Receiving compensation in crypto
Earning rewards in crypto such as staking rewards
Paying for goods and services using crypto

Airdrops - Receiving crypto from an airdrop is similar to winning money from a giveaway. Generally, this is taxed as ordinary income at the fair market value on receipt date. Note that if the airdropped tokens are stored in a wallet without being traded, there is no further taxable event. Further taxability only occurs when one sells, exchanges, or transfers the asset. See the IRS FAQs (Q21 - Q24) and Rev Rul 2019-24 for IRS guidance on forks and airdrops. Note: Transactions must be reported at their fair market value, and in US dollars.

What is not taxable?

Transferring crypto from one wallet to another owned by the same person (within Binance.US or across exchanges)
Buying crypto with cash and holding it in a wallet
Making donations of crypto to registered charitable or qualified non-profit organizations

If crypto is donated to a tax-exempt non-profit or charitable organization (registered 501c(3) organization), a donor can claim a charitable deduction equal to the fair market value of the donated cryptocurrency.

Gifting crypto of up to $15,000 per recipient per year

For recipients of a crypto gift, there is no taxable event till the crypto is sold. At the time of sale, the cost basis will be the same as when it was gifted.
For donors of a crypto gift, there is no taxable event for gifts of up to $15,000 per recipient per year. Above that, one must file a gift tax return.

Calculating Gains + Losses

Because the IRS considers cryptocurrency to be property, general principles applying to capital assets reporting apply to crypto. See IRS FAQ Q36-Q38 for guidance on reporting methods.

The IRS states that US taxpayers are required to report gains and losses, or income earned from crypto rewards (based on certain thresholds) on their annual tax return (Form 1040). This goes for ALL gains and losses—regardless if they are material or not.

Binance.US makes it easy to review your transaction history. Request a copy from your Wallet page HERE.

After reviewing your activity, you need to perform an audit to evaluate if you incurred gains or losses. This means reviewing every transaction in your account history to determine the cost basis. This will allow you to evaluate if a transaction is a loss or a gain.

Cost Basis

This provides the baseline for whether trades/sales of crypto resulted in a gain or loss. Cost basis is determined at the time of purchase. and is the cost at which one has bought the crypto.

Learn more about proper cryptocurrency cost basis assignment methods HERE.

Cost Methods (e.g. FIFO, LIFO, SpecID)

When one buys crypto at various points of time and sells certain portions, tax rules allow for lot method selection to create the most favorable tax situation. If you are a frequent trader and this situation pertains to you, please consult with your tax advisor to determine what lot selection is most pertinent for your tax scenario.

Relevant Tax Forms

Form 8949

This form is used to report sales and exchanges of capital assets. If you have crypto transactions that qualify for capital gain/loss, this form should be completed and filed with your annual tax return.

Form 1040, Schedule D

This is a summary of capital gains and losses. These generally supplement Form 8949.

Form 1099-K

This form reports payments received through a third party to the IRS. Generally, Form 1099-K is used by companies that facilitate payments to you for your goods or services from another party who is acting as the purchaser.

Note: Previously, Binance.US took the position that it was a Third Party Settlement Organization (“TPSO”) under Section 6050W of the Internal Revenue Code and accordingly, filed Forms 1099-K for certain transactions settled on the exchange. After further evaluation and general indications from the IRS on the intended direction for future reporting, Binance.US has decided not to issue Forms 1099-K for customers on the exchange for the tax year 2021 and beyond.

Form 1099-MISC

This form is used to report rewards/ fees income from Staking Rewards, Learn and Earn, Referral Programs, and other such programs if a customer has earned $600 or more in a tax year.

Additional Guidance from the IRS

The IRS provides some content regarding crypto:

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This material has been prepared for general informational purposes only and should not be considered an individualized recommendation or advice. Binance.US does not offer tax advice. Please consult an outside tax professional for guidance on your personal tax obligations.

Legal disclaimer: This material has been prepared for general informational purposes only and should NOT be: (1) considered an individualized recommendation or advice; and (2) relied upon for any investment activities. All information is provided on an as-is basis and is subject to change without notice, we make no representation or warranty of any kind, express or implied, regarding the accuracy, validity, reliability, availability or completeness of any such information. Binance.US does NOT provide investment, legal, or tax advice in any manner or form. The ownership of any investment decision(s) exclusively vests with you after analyzing all possible risk factors and by exercising your own independent discretion. Binance.US shall not be liable for any consequences thereof.

Risk warning: Buying, selling, and holding cryptocurrencies are activities that are subject to high market risk. The volatile and unpredictable nature of the price of cryptocurrencies may result in a significant loss. Binance.US is not responsible for any loss that you may incur from price fluctuations when you buy, sell, or hold cryptocurrencies. Please refer to our Terms of Use for more information.