Anyone who has part of their savings or investment portfolio in cryptocurrency needs to understand about the workings of Binance, the international crypto exchange. Binance is a huge platform.
In fact, it’s the biggest in the world as of 2018 when measured by aggregate trading volume. Currently, people who use Binance can do business in more than 100 different types of cryptocurrencies.
For U.S. citizens who use Binance, the big question is “Does Binance report to the IRS?” In addition to that topic, many investors wonder about the general tax guidelines for cryptocurrency holders, particularly as those rules pertain to paying the legal amount of tax on trading profits in the crypto marketplace.
Does Binance Report to IRS?
The short answer to the question, “Does Binance report to the IRS?” is no, Binance does not report to IRS. However, U.S. taxpayers are required by law to report certain kinds of holdings in foreign-based banks and financial institutions.
Binance clearly meets the IRS definition of a “financial institution,” thus taxpayers are legally bound to report holdings to the IRS each year.
How does the process work? First, you need to determine whether you meet the dollar-amount threshold. Generally speaking, if your aggregate account value, in cryptocurrencies, was $10,000 or greater, you must report to the IRS. Note the following:
-The $10,000 rule pertains to account value of cryptocurrency, that is, the amount of cryptocurrency you hold in the account.
-The rule applies if your account totaled $10,000 or more at any time during the year, even if only for one day.
-The total amount consists of your holdings in any number of international financial institutions, combined.
-If you meet the filing threshold, then you must file a FinCEN Form 114 and disclose every account you have in which you hold cryptocurrency.
Bitcoin / Cryptocurrency Tax Guidelines
In addition to the above guidelines for how to determine whether you must file a form with the U.S. Treasury Dept., you need to understand what the potential penalties are for not filing the appropriate form on time (by the way, the Form 114 is due on April 15 at the same time as your regular tax filing, unless opt for an extension. The absolute latest you are allowed to file the FinCEN Form 114 is October 15, regardless of how much later you file your regular tax forms. Do NOT file the form with your taxes. It can only be filed directly with the U.S. Treasury Dept. via their online portal.
Fines for not filing the form range from stiff monetary penalties that typically amount to at least $10,000 per violation, all the way up to hundreds of thousands of dollars and prison sentences of up to 10 years. It’s clear that the U.S. government considers the failure to file proper forms for cryptocurrency an extremely serious violation of law.
There is another form you will need to file based upon your account threshold. It’s the FATCA Form 8938. It’s filed directly with the IRS, not the Treasury Dept., and is included with your tax return. In no case can it be filed later than October 15.
Thresholds for having to file the FATCA Form 8938 kick in as low as $75,000 and go all the way up to $600,000, depending on your filing status. Single filers have the lowest threshold, while taxpayers who file as “married filing joint” have the highest.
How to Legally Pay Taxes on Binance Trading Profits
Disclosure is one thing. Paying taxes on your gains is another. Even if you had no gains or losses in your Binance or other foreign-based crypto accounts, then you’ll still have to report on Form 114 or Form 8938 if you met the dollar-amount thresholds.
But what if you had gains or losses? In most cases, those gains and losses will be treated as property sales and reported accordingly along with the rest of your annual financial transactions.
It’s important to note that the IRS categorized gains on sales of cryptocurrency as a “property” transaction, not a currency transaction. For that reason, most taxpayers will be able to treat the trades the same as they treat other property gains. It’s also important to know that when filing the Form 114, it must be filed online with the IRS. The government does not allow for any paper filing of the form.
Guidance for U.S. Taxpayers
In general, most foreign-based crypto exchanges are not required to report anything to the U.S. tax authorities, or any U.S. government agency for that matter. However, U.S. citizens, residents and green-card holders who hold accounts above the stated minimums in offshore crypto accounts (or with any foreign-based financial institution) are required by federal law to report those amounts to the government.
In the case of FinCEN Form 114, the reporting is done to the Department of the Treasury via an online form. No paper reporting is allowed. For FATCA Form 8939, the reporting is done to the IRS along with your regular tax return. This form can be paper-filed is the taxpayer chooses to transmit it that way.
Taxpayers who want more information about how to report cryptocurrency account values, gains and losses can visit the official IRS website for more detailed information. The direct link for the IRS website page that discusses details about both the FATCA Form 8938 and the FinCEN Form 114 is:
The U.S. Treasury Dept. website where you can file the online FinCEN Form 114 is located at:
Arnold Webb received a Masters Degree in Computer Science from Harvard University. Arnold currently is a full-time researcher and trader in the cryptocurrency industry. Arnold contributes content to CryptoCelebrities.co, The Bitcoin Magazine and several other publications.