We've partnered with CoinTracking to answer some of the most common crypto tax questions.
Crypto tax season is here, and we’re happy to provide another option for customers looking to leverage a tax tool this tax season. CoinTracking is a crypto portfolio tracker and tax solution offering a 10% discount to all Binance.US users.
This guide will provide insights on how crypto is taxed in the U.S., how to track your Binance.US trades, how to report your crypto taxes, and more.
How are crypto trades taxed in the U.S.?
According to the IRS, trading cryptocurrencies is a taxable event in the U.S., subject to capital gains taxes.
If you trade a popular cryptocurrency like Bitcoin (BTC) for fiat (e.g., USD), or another cryptocurrency, you need to calculate your gain/loss and holding period in that trade and pay capital gains taxes.
How to determine your crypto capital gains?
If you trade crypto, you must determine each transaction's capital gains/losses. Let’s look at an example to help you determine the capital gains of a crypto-to-FIAT trade.
John bought 1 Bitcoin at $18K in October 2022. He decided to sell it for $23K in February 2023.
John’s gain in this trade is $5K ($23K-$18K), and he’ll be subject to short-term capital gains taxes since he held his Bitcoin for less than 12 months.
Can you deduct trading fees from your gains?
Yes, trading fees can reduce your gains since costs associated with buying and selling crypto can be included in your cost basis.
How are crypto losses reported?
You report your crypto losses from every sale you made during the tax year on IRS Form 8949 and Schedule D of Form 1040.
Are you taxed when purchasing products with crypto?
Yes, buying a product/service with crypto, whether directly or through a crypto card, is a taxable event in the U.S.
Buying something with cryptocurrency is considered a disposal, similar to trading your crypto for another, leading to capital gains taxes.
Do you have to pay taxes if you receive tokens from an airdrop?
Yes, when you receive new tokens, you will be subject to tax on the USD value of the airdrop.
If a coin hard forks, do you need to pay taxes?
You must pay income taxes if you receive new coins from a crypto network executing a hard fork.
If a coin hard forks, it separates into different networks, and you receive a series of tokens from the newly created network; this is a taxable event. If a network soft forks, this process doesn’t happen, and you’re not taxed since you didn’t receive any new tokens.
When you receive new tokens from a hard fork, you need to determine the Fair Market Value (in USD) of those coins when you receive them. You’ll need to report that income on your U.S. Income Tax Return.
How is staking taxed?
Receiving crypto staking rewards is taxable based on the fair market value of the crypto reward at the time of receipt.
Important Note: U.S. eligible customers will receive an IRS Form 1099-Misc if they earned over $600 in rewards.
How to report U.S. crypto taxes?
You can report your crypto taxes in the U.S. by importing and tracking your trades and crypto income with the help of a crypto software, determining your gains/losses, and generating the necessary tax forms.
If you trade crypto, you must determine the gains/losses on each trade and separate them by the holding period (long-term versus short-term) since they are taxed at different rates.
After determining your crypto gains/losses, you must report them on Form 8949 and Schedule D of Form 1040.
If you have any staking rewards and new tokens from airdrops/hard forks, you should report their Fair Market Values (in USD) on your US Individual Income Tax Return.
Important Note: U.S. eligible customers will receive an IRS Form 1099-Misc if they earned over $600 in rewards from Staking.
Do I need to use FIFO for crypto taxes?
You can choose First-in First-out (FIFO) or Specific Identification to file your crypto taxes in the U.S.
If you select FIFO, when you sell some of your crypto holdings, the cost basis will be from the first crypto you bought.
For example, you bought 1 Bitcoin at $20K in 2021 and another at $30K a couple of months later. In 2022, you decided to sell 1 Bitcoin for $50K. The gain in that trade will be based on the first cost basis ($20K). In this case, the gain will be $30K ($50K-$20K).
However, you can choose a different batch (cost basis) to determine your gains under “Specific Identification.” “Specific identification” essentially allows customers to identify certain tax lots to dispose of, allowing them to leverage methods such as HIFO (selling lots with the highest basis first).
Important Note: Currently, the IRS does not require 1099 reporting for the sale of digital assets, but it is anticipated in the near future.
How to simplify your crypto taxes?
The easiest way to simplify your crypto taxes each year is to use a crypto tax software like CoinTracking that enables you to:
- Import your trades from hundreds of exchanges, blockchains, and wallets
- Determine your capital gains/losses automatically, enabling you to track your portfolio
- Generate the right crypto tax forms to file your taxes
Subscribe to CoinTracking today to receive a 10% discount for Binance.US customers. Looking for even more help with your crypto taxes? Visit the Binance.US Tax Center for all the tax tools and resources you need to file.
Disclaimer: This material has been prepared for general informational purposes only and should not be considered as an individualized recommendation or advice. BAM Trading Services Inc. (“Binance.US”) and CoinTracking GmbH do not offer tax advice. Please consult an outside tax professional for guidance on your personal tax obligations.