Two things in life are certain: death and taxes.
The first one is a bit beyond the scope of this website, but if you’re looking to maximize your returns and minimize your liabilities, we can help you calculate crypto taxes on Binance.
You are liable to pay tax on any transactions that are considered taxable events. The exact definitions vary by jurisdiction. To make things a bit easier, Koinly has a handy list of country-specific guides.
If you want guidance from the authorities themselves, the IRS has published an FAQ outlining their position on cryptocurrencies.
Generally, the following transactions are treated as taxable events:
Selling a cryptocurrency or digital asset for fiat currency is a taxable event. You are liable for capital gains tax on the amount (if any) that your original holding appreciated in value since you bought it. Capital losses may entitle you to a reduction in your tax bill.
If you use Bitcoin to pay for any type of good or service, this will be counted as a taxable event and will incur a liability.
The rules here differ by country, but in the U.S. exchanging one crypto for another (e.g. BTC for ETH) is counted as a taxable event. You will be liable for any capital appreciation of the one sold, in this example, bitcoin. There will be a new base value (also called cost-basis which is explained below) for the crypto that was traded for, in this example ETH. This is similar to selling for fiat currency except you still own a crypto instead of a fiat currency.
If you are paid a wage or salary in Bitcoin or any other cryptocurrency, this will be counted as personal income and taxed accordingly.
Any cryptocurrency you receive from mining, staking, or an airdrop will generally be counted as personal income. If your mining is classified as a business operation, you will pay tax as a business. If it is a small-scale, personal endeavor then it will be added to your taxable income.
That’s a quick outline of the rules surrounding crypto and tax.
Binance does not do much of the hard work for you when it comes to calculating your crypto taxes. Whereas some U.S. based exchanges such as Coinbase and Gemini will fill out IRS forms for you, Binance only gives a list of all your trade history.
Binance gives you the option to export up to three months of trade history at once.
Note: If you traded on Binance's Margin or Futures platforms in addition to their spot exchange, you'll need to go through the export process for each of these too.
The exported document will look like this.
As Binance does not offer USD trading pairs, instead using Tether (USDT), you cannot immediately calculate the cost-basis for your purchases, i.e. the amount in USD that the cryptocurrency was worth at the time you bought it. This cost-basis figure is necessary for calculating any capital gains and/or losses.
Of course, as a stablecoin the price of Tether doesn’t fluctuate much, but it’s an extra step to keep in mind.
To accurately submit your tax filings, you need to know the cost-basis.
Cost basis is the original value of an asset for tax purposes, usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions. This value is used to determine the capital gain, which is equal to the difference between the asset's cost basis and the current market value.
You can do this manually, calculating the price of Tether in USD at the time of each buy and sell transaction, then assigning this value to the amount of cryptocurrency purchased or sold.
This is all a lot to keep in mind, and not something you want to mess up.
However, there is an alternative to going through potentially hundreds or thousands of transactions and calculating their cost-basis by hand.
As the number of people interested in crypto continues to increase, so does the number of software solutions to help you calculate the you tax owe. These programs automate the time-consuming task of referencing price history and calculating cost-basis, a process in which even the smallest error can have compounding effects.
Picking out the best software for calculating your crypto taxes can seem almost as overwhelming as actually filing your taxes.
If you’re a casual trader who has only made a few transactions, you will be fine with the free version of a service such as Koinly.
If you have upwards of a hundred transactions across multiple exchanges, you should consider the paid versions of sites like Cryptotrader or cointracker.io. These websites import your trades from multiple exchanges and present them in simple dashboards and exportable documents. Additionally, they do not have limits on the number of transactions you can import, unlike the free version.
Many of these programs integrate with TurboTax, to make filing your return even easier. Check out our in-depth guide to adding cryptocurrency transactions to your TurboTax return.
If your taxes are even more complicated, for example you have mining income, staking profits, and multiple airdrops of various tokens, it would be wise to consult a crypto tax professional. A good accountant will ensure that you pay the right amount of tax and don’t have any troubles in the future.
The HMRC is the UK’s equivalent to the IRS.
As of now, the HMRC (Her Majesty’s Revenue and Customs) has not publicly stated that they have sent a letter to Binance requesting customer data.
They did send letters to eToro, Coinbase, and CEX.io.
One reason the HMRC may not have sent Binance a letter is because Binance is already handing this data over to the HMRC.
With that said, you should always presume that if you live in the UK and use Binance to make trades, the HMRC will find out about it. You should therefore always report these trades accurately to the HMRC.
And even if the HMRC does not petition Binance to hand over customer data today, they may do so in the future.
If the HMRC discovers that you have not been honest about your trading activity, you could be in trouble with your tax authority and that is something worth avoiding.
Filing your cryptocurrency taxes correctly is not as difficult as it may first seem. With full logs of all your transactions stored by Binance, and tax software that will automatically crunch the numbers and calculate how much tax you owe, it’s never been easier to invest in crypto and keep everything above board. By following our guides on cryptocurrency tax and the different software options out there, you’ll save time, money, and many headaches down the line.