No matter what, profits from cryptocurrency are subject to United States taxation. But does Coinbase report to the IRS in terms of your exchange activity?
Cryptocurrency trading laws are constantly evolving, especially in recent years. There was a time when crypto trading was relatively unregulated. That is no longer the case. Traders would be mistaken to believe that cryptocurrency gains are tax-free. Authorities have made it quite apparent that capital gains tax and income tax are payable on cryptocurrency both globally and in the United States in particular. There is no question that failing to accurately report and pay taxes will get you into trouble. Depending on the severity of the evasion, this could result in a fine or even jail time. It is crucial to disclose crypto gains and losses regardless of whether your exchanges are known to file reports with the IRS. Even if you cannot pay your tax liability you still need to report all crypto transactions to the internal revenue service to avoid extra penalties. Investors nevertheless have a right to know how their trade information is shared. When it comes to their interactions with Coinbase, one of the largest cryptocurrency exchanges in the US and a frequent subject of regulatory headlines, it’s vital to know whether or not this platform reports to the IRS.In this guide, we’ll break down if Coinbase reports to the IRS and everything you need to do in terms of taxes when it comes to trading crypto on this platform.Mini-Guide: Does Coinbase Report to the IRS?To put it simply: Yes, Coinbase reports to the IRS. Before the start of tax season, Coinbase tax reporting discloses your cryptocurrency transactions to the IRS. If you pay US taxes and made cryptocurrency transactions valued over $600, you will receive a 1099 form as a Coinbase.com customer. Since 2017, Coinbase tax documents have been sent to users and the IRS that show all Coinbase transactions, capital gains or losses, & even cryptocurrency income. For taxation purposes, cryptocurrency is regarded as property. This means that the same reporting requirements for capital gains and losses apply to cryptocurrencies as they do to stocks, another type of property.
Capital gains – Depending on how much the price of your coins has changed when you first received them, you may experience a capital gain or loss if you sell any cryptocurrencies. Selling or exchanging your bitcoin for another one are two examples of disposals. You must report capital gains and losses on your tax return.Ordinary income – If you received cryptocurrency income, you must calculate your income according to the fair market value of the coins you received at the time. Earning staking or rewards via referrals are two instances of income events that would fall under this category.
The tax rate you pay on your bitcoin varies depending on a number of variables, including the length of time you’ve held it and your personal income tax bracket.What Does Coinbase Send in Terms of Tax Documents?
Coinbase now issues Forms 1099-MISC to customers who are American traders and who earned more than $600 from cryptocurrency incentives or staking in the previous tax year. Note that with Coinbase tax forms, capital gains or losses are not reported on these tax forms. Each bitcoin tax form is sent by the exchange in two copies, one to the taxpayer and the other to the IRS. The IRS will therefore be expecting you to file taxes on your cryptocurrency income if you received a 1099 form from Coinbase.Even though financial gains and losses from cryptocurrency are not included in the 1099-MISC tax form, you still need to report them. This form informs the IRS that a user is actively trading cryptocurrency and may need to disclose transactions aside from rewards and staking.Why Does Coinbase Report to the IRS?
In order to track down 13,000 customers who may have underreported their cryptocurrency income, the IRS sued Coinbase
in 2018. The IRS sent over 10,000 letters to taxpayers who it believed had underreported their bitcoin liabilities the year after. Some taxpayers that failed to report and pay crypto taxes faced tax evasion charges. The organization calculated that approximately $11 billion in unpaid taxes from bitcoin transactions occurred in 2018. To sum up, Coinbase and you both should take tax reporting very seriously.What is a 1099-MISC?
Payments other than nonemployee remuneration provided to others by a trade or business are reported on Form 1099-MISC. If you operate a business or trade and accept payments from other persons or organizations, these transactions will probably be disclosed to you and the IRS if they exceed a specific threshold during the tax year. In the event of payments for rent, royalties, prizes, and awards, the IRS mandates that the amounts paid be reported on Form 1099-MISC depending on the nature of these payments. This form must be used to report gains and losses related to cryptocurrencies to the IRS on your annual tax return.Does Coinbase Send Out a 1099-K?
Luckily, this is a form you don’t have to worry about. Prior to 2021, if you were a Coinbase Pro or Prime member, executed 200+ crypto transactions with a total value of at least $20,000, or satisfied the requirements for 1099-K reporting in your state and were subject to US taxes, Coinbase would send you a 1099-K tax form.Prior to 2021, if you satisfied all of the above conditions, Coinbase would send a copy of your 1099-K to both you and the IRS. After 2020, Coinbase tax forms ceased providing customers with this form. All you really have to worry about is the 1099-MISC form.Does Coinbase Send Out a 1099-B?
Currently, Coinbase does not provide its users with Form 1099-B. The 2021 American Infrastructure Bill
, which requires exchanges like Coinbase to provide Form 1099-B to both taxpayers and the tax authority, may cause this to change starting in 2024.What Does the IRS Do With the Forms Coinbase Sends?
The IRS has stepped up auditing and enforcing crypto tax laws in recent years. They are mailing alerts like CP2000s, letters 6173, 6174, and 6174-A. The IRS can identify filers who might be omitting or underreporting information by using data from previous years’ 1099-K and current 1099-MISC filings that might have a tax liability. What to Do if You Receive a 1099-MISC Form from Coinbase
The following describes how to include the income on Form 1099-MISC in your tax return:
Your Coinbase income should be included on Schedule C if you are self-employed and your bitcoin activities are an integral element of your trade or business.If you do not work for yourself, you can list your Coinbase earnings on Schedule 1 under “other Income.”
Your overall income from staking and incentives, not individual transactions, is what is reported on the 1099-MISC. You must disclose the specifics in order to figure out your crypto taxes, as well as any capital gains, losses, or regular income from any exchange. A crypto tax calculator can help with this, and there are many available online if you do a quick Google search. Crypto tax software can even automate this process with many programs automatically hooking into Coinbase. Additional FAQs About How Coinbase Reports to the IRSCan I download my Coinbase transaction history for tax purposes?
Of course. In the Reports section of Coinbase.com and the Statements section for Pro, you can download your transaction history. We advise using the crypto tax software CoinTracker
, which is also advised by Coinbase itself, to assess your gains and losses for the year and to determine a cost basis for your transactions.Can I download my tax report from Coinbase?
Yes, and we recommend doing so. In Coinbase Taxes, under Documents, you may download your tax report. Read up on the proper usage of these forms and reports. While Coinbase Taxes captures your Coinbase.com activity, it excludes Coinbase Pro activity. To download Pro transactions, go to the Statements area of Pro. We advise carefully checking all coinbase tax reports to make sure you are not missing any activity from Pro. Are trading fees included in my crypto taxes?
Trading commissions are deducted from your proceeds and added to your cost basis, which is the price you paid for your cryptocurrency (what you earn from selling or trading).Do all crypto exchanges like Coinbase report to the IRS?
The passing of the 2021 infrastructure bill suggests that major exchanges like Coinbase will soon be compelled to provide 1099-B forms to clients and the IRS. You only need to be concerned about your 1099-MISC form right now, though.Can the IRS see what’s in my crypto wallet?
The IRS is probably keeping a close eye on transactions made on blockchains like Bitcoin and Ethereum. The IRS has worked with blockchain contractors
in the past to examine the blockchain and link anonymous wallets to known people.What if I don’t cash out my crypto?
If you simply hold your cryptocurrency on Coinbase without selling, trading, exchanging, or cashing it out, you are exempt from paying capital gains tax on it. You will have to pay taxes on the realized value of any other cryptocurrency you dispose of, providing it is worth more than you paid for it, whether you sell it, trade it, exchange it, or cash it. Either short-term or long-term rates of taxation will apply to the capital gain.