Binance is the leading crypto exchange when it comes to number of listed coins and trading volume so you have probably done some trading on it. And now you need to pay taxes on those trades. This guide will help you learn how to do Binance tax calculation.
Human beings have two certainties in life: death and taxes! While death is obvious and you are not dying yet, at least not now, you want to know how to go about taxes. Minimal liabilities and optimal returns are crucial, especially in the crypto space.
Do you want to find out how you can calculate your crypto taxes for the trades you did on Binance? Well, continue reading and gain knowledge on how to do it.
When am I legally responsible for paying tax?
Different countries have different tax laws that define when one is liable to pay tax. Depending on your jurisdiction, you are liable to pay tax on any transaction deemed as a Taxable Event. When it comes to cryptocurrencies, a lot of activities are deemed as taxable events, including:
- Exchanging your crypto coins for cash
So, you want to purchase or sell your digital asset, right? Or you want to exchange cryptocurrency for fiat currency. You know what? That’s a taxable event. You have to part with capital gains tax on the amount that your original holding increases in value since buying it. However, you may file fo a tax bill reduction if you have capital losses on your trades.
- Using cryptocurrency to pay for goods and services
You are off to the store or the Mall, and you want to buy something and pay with some crypto credit card that allows you to pay with crypto coins. Good feeling, right? That transaction becomes a taxable event. Even when you buy a pizza and pay via crypto, it’s still a taxable event.
- Cryptocurrency conversions
Exchanging one crypto for the other is a taxable event because you are liable for any capital appreciation. However, the taxable event rules, in this case, hinges on your country of origin. For instance, in America, exchanging bitcoin for ethereum or some other coin is a taxable event.
They calculate it against the dollar value of the crypto (in this case, bitcoin) which is the same as exchanging it for fiat currency.
- When receiving digital coins as income
You have worked, and very hard for that matter. What’s your wage or salary? If you are paid via cryptocurrency or any other digital coin, it implies a personal income, and you will be taxed accordingly. Again, this pegs on the tax laws of your country.
- Mining, betting with crypto coins, staking or receiving an airdrop
If you mine, stake or receive an airdrop of any cryptocurrency, that amounts to personal income. Should your mining operation be a business or classified as such, you receive business tax obligations. If you mine on a small-scale or personal level, this falls within your personal income tax.
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The Tax Documents you receive from Binance
Do not expect Binance to do the hard work for you if you want to calculate your crypto taxes. However, you will receive a list of your trade history. Here, you can export up to three months of trade history at once. Other exchanges like Gemini and Coinbase are more helpful and will handle the IRS forms for you.
You don’t get USD trading pairs at Binance, and even if you use Tether (USDT), you can calculate the cost basis of your purchases for your cryptocurrency. The cost-basis amount is essential to calculate capital gains or losses. Remember that Tether is a stablecoin whose price doesn’t fluctuate much.
Calculating Binance Cost Basis
For you to file your taxes, you ought to know the cost basis.
What is Cost basis?
It’s the original value of an asset adjusted for factors like appreciation or depreciation. The cost basis value is essential in determining the capital gain that matches the difference between an asset’s cost basis and the prevailing market value.
You can do a manual calculation where the price of Tether (USD) at the time of purchase and sell transaction, then put this value to the amount of digital coins bought or sold. This is super tedious and time-consuming, especially if you did a lot of trading during the year. Luckily, the alternative is there in a form of crypto tax calculators available to assist you file your taxes.
Many people are joining the crypto space but so do new automated solutions that can meet the rising need. The automated crypto tax calculators will cut down on the time-consuming task of historical references and cost basis calculations where even the slightest error generates serious ramifications.
Best crypto tax calculators that work with Binance exchange are:
Koinly is a crypto tax software that give you capital gains report, income report, and transfer detection. The app is also a great fit for mining companies and ICO startup companies. Koinly supports over 100 countries globally and 300+ exchanges, 6000+ cryptocurrencies. In short, Koinly can cover all your needs, no matter what and where you traded crypto.
Koinly has the following features.
- Clean and easy-to-use interface
- Over 300 exchanges
- Exports US and Canadian tax forms
CryptoTrader.Tax is built to be the easiest and most user friendly platform for calculating your cryptocurrency taxes and generating your necessary reports. It serves as a “one-stop shop” to handle cryptocurrency tax reporting for all types of cryptocurrency use cases. Whether you are mining, staking, lending, or simply buying or trading, CryptoTrader.Tax will automate your tax reporting. Signing up and testing out the platform is completely free. You can import all of your data and make sure everything looks good before ever having to pay.
- Easy imports from almost every crypto exchange
- Enables easy uploads to TurboTax
- Supports many exchanges
Purchasing the premium CoinTracking service gives you a full year of being able to use it to its full capacity. This means that if you purchase the service in April of 2018, you’ll be able to calculate your taxes for 2018 and everything you earn/spend until April of 2019. The full service includes a Capital Gains Report done with FIFO, LIFO, HIFO or LOFO calculation and is fully prepared for accountants and tax office personnel.
- Easy tax report printing at any time
- Supports in the UK, Australia, USA and Switzerland
- 4500 coins from all exchanges and wallets
Choosing the right software for your Binance tax calculations
It may be overwhelming to select the best software that meets your tax calculation needs. Choosing the right software will anchor on the number of transactions you make. If you did only sporadic trading with low number of transactions, you can do well with the Koinly free version.
An upward of a hundred transactions spread across multiple exchanges will demand paid versions like CryptoTrader or Cointracker.io. With these, you can import your trades and present them in simple dashboards and exportable documents.
More so, they do not have limits on the transactions you can import. Filing your returns becomes easy, especially with TurboTax integration.
Conversely, you will need a crypto tax professional if you have complicated taxes that include other crypto-related stuff like staking, mining, airdrops, crypto lending etc. With a good crypto tax tool, you will know the right tax amount to pay, thereby averting any future troubles.
Do not let taxes dim your intentions of investing in crypto coins. Filing your taxes correctly is not as hard as it may seem. Since Binance has the full logs of every transaction you make, a good tax software that will run the numbers and calculate the amount you owe in tax is the only thing you need to keep everything above board.
With the guidelines provided above and the tax software options listed, you can save a lot of time and more importantly the headaches of the entire process.
CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com