How are my Coinbase transactions taxed?
As we have discussed in great detail in our Complete Guide to Cryptocurrency Taxes, cryptocurrency is treated as property for tax purposes. This means that capital gains and losses reporting rules give to cryptocurrency exchangeable to how they apply to stocks ( another form of property ).
Capital gains: If you dispose of cryptocurrency, you ’ ll incur a capital gain or loss depending on how the price of your coins has fluctuated since you in the first place received them. Examples of disposals include selling your cryptocurrency or trade it for early cryptocurrencies. Ordinary income: If you ’ ve earned cryptocurrency income, you ’ ll recognize income based on the clean market measure of your coins at the meter you received them. Examples of income events include earning staking or referral rewards. The tax rate that you pay on your cryptocurrency varies based on multiple factors, such as your holding period and your personal income bracket .
Does Coinbase report to the IRS?
presently, Coinbase may issue a certain 1099 form to both you ( the account owner ) and the IRS if you meet certain qualifying factors. Due to the passage of the American infrastructure bill, Coinbase and other major exchanges will probable be required to issue 1099 forms to all customers in the near future.
In accession, the IRS issued a John Doe Summons to Coinbase in 2016. The company was required to hand over data on over 8 million transactions to the tax means.
What does the IRS do with the information Coinbase provides?
In the past, the IRS has used the data from 1099 forms to send warning letters to Coinbase users. It ’ s reasonable to assume that discrepancies between Form 1099 and a taxpayer ’ sulfur render can increase the risk of a cryptocurrency tax audit.
What are 1099 forms?
1099 forms are designed to provide information to the Internal Revenue Service ( IRS ) about certain types of income from non-employment-related sources. Put another way, 1099 forms are designed to report income that you received that wasn ’ triiodothyronine from your employer.
While there are many unlike types of 1099 forms, we ’ ll focus on three relevant ones in this article.
Form 1099-K: This shape is normally used by credit/debit card networks and early payment colony networks. The mannequin shows the IRS the transaction volume of process payments.
Form 1099-MISC: This shape is used to report ‘ many-sided ’ income to the IRS. Rewards from referrals and staking would fall into this ‘ assorted ’ category.
Form 1099-B: This form is used to share information about property/security disposals made through a agent. You may be familiar with this form if you ’ ve used breed exchanges like Robinhood or E-Trade.
Does Coinbase send a 1099-K?
In years anterior to 2021, Coinbase sent you a 1099-K tax form if :
- You were a Coinbase Pro or Coinbase Prime customer
- You executed 200 trades or more, whose total value is equal to or greater than $20,000* (OR met your state’s 1099-K reporting thresholds)
- You were subject to US taxes
If you met all three of these requirements anterior to 2021, Coinbase sent you AND the IRS a copy of 1099-K. Coinbase stopped issuing this form to customers after 2020. For more data, check out our article on why Coinbase stopped issuing Form 1099-K .
Does Coinbase send a 1099-MISC?
You will receive Form 1099-MISC if you :
- Are a Coinbase.com customer
- Received $600 or more in cryptocurrency from Coinbase Earn, USDC rewards, and/or staking
- Are subject to US taxes
If you meet each of these three criteria, both you and the IRS will be sent a replicate of your 1099-MISC. 1099-MISC details the amount of income you have earned from Coinbase .
What should I do if I receive a Coinbase tax form?
here ’ s how you can report the income on Form 1099-MISC on your tax return.
Self-employed: If you are freelance and your cryptocurrency activities are share of a trade wind or commercial enterprise, your Coinbase income should be reported on Schedule C.
Not self-employed: If you are not freelance, your Coinbase income can be reported as ‘ early income ’ on Schedule 1.
Your Form 1099-MISC will not contain relevant tax information about administration events, such as selling your cryptocurrency for decree. The burden is on you to calculate your tax liability for these transactions.
CoinLedger can help. The platform can integrate with your Coinbase account and pull in a complete criminal record of all the trades you ’ ve made during the tax year. Once you ’ ve imported transactions from your other exchanges and wallets, you can generate a complete tax report with the cluck of a release.
Does Coinbase send a 1099-B?
At this time, Coinbase does not issue 1099-B forms to customers.
however, this is likely to change in the near future. The 2021 American infrastructure bill requires cryptocurrency ‘ brokers ’ like Coinbase to provide 1099-B forms to customers and the IRS startle in 2024.
How will Coinbase 1099-Bs impact investors like me?
1099-B forms may present problems for Coinbase customers in the future.
Because cryptocurrency is so well movable, investors frequently move their coins between different wallets and exchanges. As a consequence, it ’ south unmanageable for exchanges to provide their customers with accurate tax report data.
Consider the adopt scenario . In this case, it ‘s unmanageable for Coinbase to know David ’ s master cost basis. As a consequence, Coinbase can not accurately calculate David ’ s tax indebtedness should he decide to sell his Bitcoin.
This may present a trouble in the future if Coinbase is required to issue 1099-Bs. If David sells his Bitcoin for $ 10,000 on Coinbase, it ’ s probably that the gross proceeds of his sale will be $ 10,000 on his 1099-B. Because Coinbase doesn ’ thymine know the cost footing of David ’ randomness coins, it will likely show as n/a.
In this case, the charge of proof will be on David to prove that he bought his Bitcoin for $ 10,000. otherwise, he may be on the hook for a capital amplification of $ 10,000.
How crypto tax software can help
Cryptocurrency tax software like CoinLedger can simplify the process of reporting your Coinbase transactions. It ’ south comfortable to use and directly plugs into your TurboTax report. Sign up for an account for spare, import all of your diachronic trades and transactions, and automatically generate tax forms like 8949 with the click of a button. The solid process takes around 15 minutes !
Get started with a free preview report today .
Frequently asked questions
Let ’ s hood off our discussion by answering a few frequently asked questions about Coinbase taxes.
Do I pay taxes on Coinbase transactions? Coinbase transactions may be subject to capital gains or income tax depending on the specific nature of the transaction.
Will Coinbase send me a 1099? presently, Coinbase sends Form 1099-MISC to customers who are based in the United States and earned at least $ 600 of income on the platform.
Do all crypto exchanges report to the IRS? It ’ s probably that major exchanges like Coinbase will be required to issue 1099-B forms to customers and the IRS in the cheeseparing future because of the passage of the 2021 infrastructure charge.
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Can the IRS see my crypto wallet? It ’ s likely that the IRS is closely monitor transactions on blockchains like Bitcoin and Ethereum. In the by, the IRS has partnered with contractors like Chainalysis to analyze the blockchain and match ‘ anonymous ’ wallets to known individuals.
This mail is for informational purposes alone and should not be construed as tax or investing advice. Please speak to your own crypto tax expert, CPA or tax lawyer on how you should treat taxation of digital currencies .