The Decentralized Finance space and cryptocurrencies, in general, have been on the rise in recent years with many technology enthusiasts and non-tech savvy people alike taking a keen interest in the technology and its applications and use cases in our everyday life.
As the adoption of cryptocurrencies and investing in crypto-related assets continues to grow, so does the need for clarity on how to properly report cryptocurrency transactions for tax purposes.
With many crypto wallets and exchanges available in the market right where you can store and trade cryptocurrencies and other crypto-assets including NFTs, users might be wondering if their wallet provider or crypto exchange is obligated to report their trading activity to the Internal Revenue Service (IRS).
One of the most popular and preferred crypto wallets by many crypto and DeFi enthusiasts is the Metamask wallet which is available on both desktop (as a web browser extension) and mobile devices.
If you’re based in the United States and just started using this popular wallet, you might be wondering, does Metamask report to the IRS? So many new Metamask users have also had questions like this in the past, especially those new to cryptocurrencies and crypto taxes.
In this article, we will take a closer look at Metamask, explore its relationship with the IRS, and ultimately determine if the crypto wallet reports your transactions to the IRS.
Here, we will also examine the IRS regulations on taxes related to cryptocurrencies and other crypto-related assets and also provide tips on how to comply with the IRS regulations while using Metamask.
Does Metamask Report Your Activity To The IRS?
Metamask is a non-custodial wallet and because the wallet doesn’t require any of your personal details when you create a wallet, Metamask is not legally obligated to report your activity to the Internal Revenue Service (IRS).
Unlike centralized exchanges like Binance, Coinbase, and the likes which request your personal details including your full name, social security number, etc, non-custodial wallets are different – you can create a wallet and start trading, receiving, and sending cryptocurrencies anonymously without giving any of your personal details away.
Since you don’t provide your personal details via KYC when creating a wallet on a non-custodial crypto wallet software like Metamask, these wallets are not required by the IRS to report user transactions since they don’t actually have the information of who is behind each transaction.
That said, the fact that Metamask doesn’t report user activity to the IRS doesn’t mean that its users are exempted from reporting their cryptocurrency transactions for tax purposes.
The IRS has made it clear that virtual currencies including cryptocurrencies are treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.
This means that any gains and losses accrued when trading cryptocurrencies either on Metamask or any other crypto wallet must be reported in your tax returns and not doing this can result in penalties, fines, and even legal action in some cases.
How Can I File Metamask Taxes?
While Metamask doesn’t report directly 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.
There are multiple ways you can keep track of your transactions on Metamask. You can either note down your transactions and all the information relating to the transaction including the date, amount, and purpose of the transaction, or track your transactions using any of the popular crypto tax reporting software.
To file your Metamask taxes, we recommend using crypto tax software since it is quite easy when compared to noting down your transactions manually.
Most crypto tax software like Cointracker (which is our favorite) allows users to generate tax forms for their Metamask transactions by simply linking their Metamask ETH wallet address to the platform.
Some taxable events on Metamask include selling cryptocurrency, trading one cryptocurrency for another on DEXes with your wallet, using crypto on your wallet to buy goods and services, receiving crypto from a fork, or mining.
But not every event on your Metamask wallet is taxable. Some non-taxable events on Metamask include buying crypto with fiat (usually with your credit/debit card), donating cryptocurrency to non-profit/tax-exempt organizations, gifting crypto, and transferring crypto to your Metamask wallet from a wallet you own.
Do Crypto Transactions Have To Be Reported To The IRS?
If you live in the United States, then Yes, all your taxable crypto transactions have to be included in your tax returns and submitted to the IRS.
For non-US residents, you also have to report your crypto transactions but this time to the agency responsible for collecting taxes and administering the Internal Revenue Code in your country.
Most jurisdictions around the world tax cryptocurrency transactions so it is necessary to know how crypto is taxed in your country of residence and file your taxes accordingly.
Does The IRS Track Metamask?
The IRS does not specifically track Metamask or any other crypto wallet because they’re not financial institutions and are not required under law to report any user activity to the agency.
While the IRS doesn’t particularly track Metamask, the agency has the ability to obtain information on cryptocurrency transactions and has taken steps to enforce tax compliance in the virtual currency space.
One question we have seen surface on many crypto forums on many occasions is – does Metamask report to the IRS? And it is a question that is often asked by new Metamask users who don’t quite understand how crypto taxes work yet.
As you should know if you got to this point in the article, Metamask does not report user activity to the IRS and it is not legally obligated by law to do so. This is because Metamask doesn’t collect the personal information of users hence it cannot generate the tax documents required to report taxes to any tax agency.
That said, the IRS has made it clear that virtual currencies including cryptocurrencies are considered property and are subject to taxation.
If you use Metamask Metamask to manage your crypto holding/assets and crypto transactions, we recommend keeping detailed records of all your taxable transactions and accurately reporting gains and losses in your tax returns.
For users who do not have the patience of keeping records of their transactions manually, you can use any of the crypto tax software available to automatically find all taxable transactions made on your wallet address and generate the appropriate tax forms.
And that will be it for this article. If you wanted to know if your activity on Metamask is automatically reported to the IRS we hope you found this article helpful.