Binance is one of the leading cryptocurrency platforms in the market. In addition, it also has large traffic in its own blockchain and digital assets. It is a company that has made some changes in recent years regarding taxation in the United States.
Things to keep in mind about cryptocurrencies and taxation in the US.
Taxation on digital assets is complex. It depends on how each government and tax authority understands and applies it. In the case of the United States, digital assets are understood as property. Therefore, since they are property, they should have the same tax treatment.
For the IRS, your cryptocurrencies will have the same consideration as your home or stock market shares.
Therefore, being subject to tax rules, cryptocurrencies must be taxed. That is to say; they should be subject to the tax rules of gains and losses. Therefore, they should abide by the tax reporting of revenues, income, or capital gains. Always included in tax returns.
The tax return should be similar to that of any other taxable asset. That is to say, you should calculate what you have earned times what you have lost and gained. The calculation should be made in the local currency, in this case, in dollars. And subsequently, you should take the estimate to the tax forms.
Binance in the United States and tax reporting
If you’re wondering whether the IRS gets direct information from the platform, the first thing to remember is that Binance changed in 2019 when it launched Binance.US geared towards US users.
As of 2021, the platform stopped issuing the 1099-K report. Therefore, they do not report directly to the IRS. In fact, even if you made sales of more than $20,000 in 2021, the platform is not going to report to the tax authorities.
But does this mean you should stop reporting your transactions? Not really. In fact, it can pose a serious problem of financial malpractice.
On the other hand, Binance does report some transactions. For example, bets or rewards you earn through Learn and Earn programs. In this case, this type of income, qualified as ordinary income, is reported when the earnings exceed $600. For this purpose, the platform issues a report called 1099-MISC.
How to proceed with good tax practice with your assets on Binance?
If you wish to communicate with the IRS about the operations on the platform, as you can see, no tax report is generated. Therefore, the platform will not report directly to the tax authorities. But remember, the fact that the platform does not report your transactions does not mean that it exempts you from the obligation to do so.
A widely used formula is to use an API. The process is simple: download the transaction history by connecting through the API to the software of your choice. There are a large number of digital asset tax management software. Another option is to export a CSV file containing the transactions made on the platform. The file can be transferred to a cryptocurrency tax calculator. The data you obtain are the ones that will allow you to fill in your tax return in the section of the digital asset.
Another important thing is to appreciate that the platform also does not provide financial statements. In this case, you can use the CSV file as if it were a transaction history. Also, the transaction report will be the closest thing to a financial statement that the platform will provide.
Why cryptocurrency tax reporting matters
In recent years, the tax implications on digital assets have become ever greater. The awareness on the part of the tax authorities of the importance of this market has caused them to turn their eyes ever more comprehensively to the losses and gains they can generate. The first steps towards regulating these assets are already being taken. But regulation is not likely to be forthcoming very soon. However, to think that the absence of a law exempts from taxation is a mistake that can lead to serious consequences.
As recently as five years ago, the IRS was working towards eradicating tax evasion malpractices. Today, however, we can talk about the constant pressure on digital asset platforms to share as much sensitive information as possible. We should also remember that, in the event of a tax offense or presumption of a tax offense, requests may be generated to which the platforms are obliged to respond.
Therefore, we would be facing a situation in which, even if in some cases, we could eventually evade a tax return for a specific fiscal year, the tax authorities could immediately request information at the slightest suspicion. Despite the decentralization, these platforms keep the memory of all the transactions mandatorily, that is, of all historical movements that you have made. If there is an investigation, the specific actions of the year for which the claim is made will come to light, as will all the operations in the period requested by the tax authority.
In other words, if you do not declare your digital assets, you expose yourself to a thorough investigation, which the platform may even be forced to report in a personalized manner.