The rise of mainstream cryptocurrency adoption and investing in virtual currencies has brought about a revolution in the way many tech-savvy individuals store, transfer, and invest their money.
With the growing interest in cryptocurrency and other crypto-related assets, governments and other regulatory agencies/bodies have struggled with keeping up with taxing digital currencies effectively.
For citizens of the United States of America, the country’s tax regulatory body – the IRS has made it clear that all profits from trading virtual currencies are taxable hereby leaving crypto enthusiasts and investors wondering if their crypto wallet or crypto exchange of choice automatically reports their trading activity to the IRS.
Binance is currently the biggest centralized crypto exchange in the world with over $6.2 billion worth of cryptocurrencies and other crypto assets traded on the platform daily.
If you’re a United States citizen who just recently started using Binance to purchase and trade cryptocurrencies, you might be wondering – does Binance report to the IRS?
In this article, we shall be exploring the world’s biggest crypto exchange – Binance, and its relationship with the Internal Revenue Service and ultimately determine if the crypto exchange reports your transactions to the tax agency.
Does Binance Report Your Trading Activity To The IRS?
There are currently multiple versions of the Binance exchange – 2 of the most popular versions being Binance International (Binance.com) and Binance US (Binance.US).
Binance International is the international version of the Binance exchange with its head office based in the Cayman Islands according to multiple sources although the company’s CEO – Changpeng Zhao (CZ) claims the company is “decentralized” with no known HQ.
Binance.US on the other hand is an exchange based in the United States and serves customers in the country. It has its headquarters in Palo Alto, California and Binance claims Binance.US is a completely different exchange with no strong ties to the international version.
Since Binance International is not a United States company, it is not obligated to report user transactions and trading activity to the IRS. For Binance.US, it is quite different because the company is legally required to report to the tax agency since it is a registered financial institution in the United States.
When a user makes $600 or more from trading cryptocurrencies or other crypto assets, referrals, staking, and more on Binance.US, the exchange issues a Form 1099-MISC and files an identical copy with the Internal Revenue Service (IRS).
If you are a United States citizen who uses Binance International via a VPN, then we recommend using a crypto tax software to file your crypto taxes to the IRS since the exchange won’t report your transactions to the tax agency automatically or generate a Form 1099.
Does Binance Report To Tax Authorities In Europe?
As of the time of writing this article, Binance does not automatically report user activity and transactions to any of the tax authorities in Europe.
Even though Binance doesn’t automatically report your transactions to the tax agencies in your country if you live in Europe, we recommend using any of the popular crypto tax platforms available including platforms like Koinly, Cointracker, CoinLedger, and more to generate your tax reports and file your taxes accordingly.
We also recommend consulting a tax professional in your country and researching the tax laws for virtual currencies in their country of residence and ensure compliance with the said laws.
Do Crypto Transactions Have To Be Reported To The IRS?
If you’re a United States citizen, then yes all your taxable cryptocurrency transactions are required to be reported to the IRS.
That said, not all cryptocurrency transactions are taxable. Some taxable crypto events include trading cryptocurrencies, using crypto on your wallet to buy goods and services, receiving crypto from a fork, mining, staking, referrals, and more.
Some non-taxable cryptocurrency transactions according to the IRS include donating crypto to non-profit organizations or charities, buying crypto with fiat, gifting crypto, and transferring tokens to another wallet you own amongst others.
Since Binance.com doesn’t automatically generate tax reports or report your transactions to the IRS, it is important for you to keep track your all your transactions including gains and losses and report them accurately in your tax returns.
On Binance.US and other country-specific Binance versions, then things are quite easy since the exchange will automatically generate a tax report when your taxable earnings are above $600.
How Can You File Your Binance Taxes?
To file your Binance Taxes, we recommend using any of the popular crypto tax software available right now since the process of generating your tax reports on any of these platforms is quite easy and straightforward requiring very little work on your end – the software will automatically generate a tax report for you.
For filing your Binance taxes (either on Binance.com or Binance.US) we recommend using a crypto tax software known as Koinly.
Koinly allows you to generate your tax reports by simply connecting your Binance account to the platform using your Binance API key or by importing your Binance transaction history via a CSV file.
After connecting your Binance account or uploading your transaction history to your Koinly account, the platform will categorize your Binance transactions into gains, losses, and income and then generate a comprehensive crypto tax report which you can submit to the IRS.
Which Crypto Exchanges Do Not Report To IRS?
All crypto exchanges registered in the United States as financial institutions are legally obligated to report taxable crypto transactions of their users to the IRS.
Exchanges outside the jurisdiction of the United States are not required to report to the US tax agency, but they may be required to report to the tax agency of the country they’re domiciled in.
There is currently no official list of crypto exchanges that do not report user activity to the IRS and for crypto enthusiasts who are concerned about their privacy and tax reporting obligations, we recommend exploring decentralized exchanges (DEXs) or peer-to-peer (P2P) marketplaces since these platforms often do not collect user information or automatically report to tax authorities.
Regardless of the platform used for trading cryptocurrencies, it is important to note that individuals are still fully responsible for reporting their taxable cryptocurrency transactions and paying taxes on any gains or income generated on these transactions.
Most Binance users in the United States have at one time or the other inquired if Binance reports their crypto transactions to the Internal Revenue Service for tax purposes.
If you use the US-specific version of Binance – Binance.US, then yes, all profits and taxable crypto transactions over $600 are reported to the IRS automatically by the exchange.
For the international version of Binance which is available worldwide, transactions are not reported to the IRS and this is because Binance International is not a registered financial institution in the United States.
That said, all users of any of the versions of Binance are fully responsible for reporting their taxable crypto transactions to the tax agency in their country of residence in order to stay out of trouble with the authorities.
Crypto tax software like Koinly can help with generating comprehensive tax reports for your cryptocurrency transactions on Binance. These tax reports can then be submitted to the IRS or the agency responsible for taxes in your country.
And that will be it for this article. If you were confused about the relationship between Binance, the IRS, and your crypto transactions, we hope this article helped you clear that up.