Crypto Taxes and Accounting

Filing Your Coinbase Taxes? Here's The Complete Guide To Coinbase Tax Documents

May 16, 2023
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    Coinbase, the leading cryptocurrency exchange in the United States, boasts a staggering user base of over 50 million individuals. Unlike many other exchanges that primarily serve crypto enthusiasts, Coinbase specifically targets mainstream consumers by providing an intuitive mobile application and prioritizing regulatory compliance. To further bolster user trust, the company maintains a substantial $255 million insurance policy and boasts an impressive track record of never experiencing a successful hacking attempt—a feat that sets it apart from many of its competitors.

    However, despite its exceptional commitment to security and compliance, Coinbase has encountered its fair share of controversies in recent years. One such instance involved the company complying with a request from the Internal Revenue Service (IRS), wherein it provided the records of 13,000 users who had engaged in transactions exceeding $20,000 between 2013 and 2015. Additionally, more recently, Coinbase initiated the practice of submitting 1099-K forms to the IRS for high-value customers.

    For Coinbase users, it is crucial to understand the implications of these Coinbase tax documents and the specific forms that need to be furnished to accountants. Let’s shed some light on these Coinbase tax documents.

    Does Coinbase Report to The IRS? IRS Targets Cryptocurrency Holders

    According to the IRS (Internal Revenue Service), approximately $11 billion, or 2.5% of the $450 billion tax gap, was estimated to be attributed to unreported cryptocurrency tax liabilities in 2018. In an effort to address this issue, the tax agency took legal action against Coinbase in the same year, seeking to uncover the identities of approximately 13,000 customers involved in high-value transactions. This move was aimed at identifying individuals who may have evaded reporting their cryptocurrency-related tax obligations.

    In 2019, the IRS intensified its efforts by sending over 10,000 letters to taxpayers suspected of under-reporting their cryptocurrency liabilities. Additionally, the tax form 1040 was updated to include a specific question about cryptocurrencies, which is now mandatory. This inclusion serves a dual purpose for the IRS—it allows them to gather valuable data and also acts as a deterrent, as providing false information on a tax document or inaccurately reporting taxes is considered perjury, a federal felony.

    To further combat tax evasion related to cryptocurrencies, the IRS began collaborating with blockchain experts. Their aim was to identify taxpayers who might have attempted to conceal their crypto tax liabilities in order to evade their tax obligations. In May 2020, the IRS issued a statement of work, seeking assistance from independent blockchain experts to reconcile the reported crypto capital gains and losses on taxpayers' tax returns.

    Coinbase Tax Reporting: Why did I get a 1099-MISC form?

    For the tax years 2017 through 2019, Coinbase took the initiative to file 1099-K forms for eligible customers who met specific criteria. These criteria included having 200 or more transactions with a total value exceeding $20,000. These forms serve to report the combined value of transactions conducted on Coinbase, rather than providing information about total capital gains or losses. The forms are automatically sent to the IRS, offering them insights into users' trading activity.

    However, the introduction of 1099-K forms caused confusion among many Coinbase users, leading to instances of overpayment of taxes. This confusion arose because the forms do not include the original cost basis of transactions or account for associated expenses. As a result, users who did not utilize a crypto tax solution or consult an accountant may have paid taxes on the gross amount of their transactions rather than accurately calculating their lower capital gain amount.

    Coinbase provides an IRS form called 1099-MISC to report miscellaneous income rewards to customers in the United States who meet specific criteria. These criteria include being a Coinbase customer, being classified as a US person for tax purposes, and having earned $600 or more in miscellaneous income from learning rewards, USDC Rewards, and/or staking.

    Coinbase Tax Documents: How To Make Sure You're Paying The Right Amount?

    Coinbase users who have engaged in certain activities, such as selling cryptocurrencies for a gain or loss, converting one cryptocurrency to another, or earning $600 or more in rewards, may have tax obligations at the federal or state level. Among these activities, the conversion of one cryptocurrency to another, also known as crypto-to-crypto transactions, tends to be the primary source of confusion for taxpayers. It's important to note that even if you didn't sell your crypto for cash, you may still owe capital gains taxes.

    For accurate Coinbase tax reporting, the platform advises users to employ third-party crypto tax software. While it is possible to manually reconcile transactions, using crypto tax software automates the process, minimizing the risk of overlooking any transactions and ensuring accurate calculations. By utilizing such software, you can avoid potentially costly mistakes and have greater confidence in meeting your tax obligations.

    The key tax forms that you may need to submit include:

    • Schedule 1: This is where you report income from sources other than wages, interest and dividends.
    • Schedule D: This is where you calculate your total capital gain or loss that appears on Form 1040.
    • Form 8949: This is where you list out each capital gain or loss from crypto investments.

    Taxpayers with a significant number of crypto transactions and/or assets should also consider engaging an experienced accountant. For instance, crypto miners and full-time traders may be able to deduct certain expenses from their gains to lower their tax bill. Taxpayers with simple taxes can also use tools like TurboTax that support basic crypto transactions.

    In addition to submitting the right tax forms, there are many other ways to cut down on crypto tax bills, ranging from choosing the right accounting method to harvesting tax losses.

    How to do Coinbase Taxes? ZenLedger Makes It Easy

    ZenLedger provides a user-friendly solution for importing transactions from multiple wallets and exchanges, streamlining the process of computing capital gains or losses, and conveniently populating the necessary tax forms. Beyond the fundamentals, this platform simplifies complex crypto transactions, including those related to DeFi, and also identifies opportunities for tax loss harvesting throughout the year. Here’s how you can use ZenLedger in 3 simple steps:

    Coinbase Tax Documents
    ZenLedger’s easy-to-use interface. Source: ZenLedger

    Step 1 - Import Your Transactions 

    ZenLedger offers a seamless process for importing your crypto trading history from over 500+ crypto exchanges and wallets. All you need to do is import your exchanges and wallets using a read-only API, a CSV file, or by providing the public receiving addresses. This allows our tool to create a comprehensive crypto tax report, covering all your transactions and ensuring accurate tax calculations. By connecting your accounts, ZenLedger automatically calculates your cost basis, fair market value, and gains/losses for each transaction.

    Step 2 - Review Your Transactions

    Once your transaction history is imported, you can easily review and calculate your capital gains and losses. ZenLedger provides a clear view of your tax liability for each cryptocurrency transaction. You can also analyze historical cryptocurrency tax income, including mining, staking, lending, gifts, airdrops, and forks.

    Step 3 - Download Your Forms 

    After reviewing your reports and ensuring their accuracy, the final step is to generate your tax forms. ZenLedger automatically creates the necessary tax documents for each tax year, simplifying the filing process. These forms include important documents such as Form 8949, Schedule D, and other relevant forms required for accurate tax filing.

    For those in need of professional assistance, ZenLedger can connect users with crypto tax professionals such as tax attorneys, CPAs, or Enrolled Agents. This ensures that both crypto and non-crypto taxes can be efficiently and accurately handled, employing intelligent tax strategies. The pricing for these professional services ranges from $750 to $2,500 per year, depending on factors such as the number of transactions, total asset value, and number of tax forms involved.

    Get started for free or learn about prepared plans

    Here's A Checklist of Tips On How To Save on Coinbase Taxes

    Consider Donations

    You can donate cryptocurrencies to 501(c)(3) charities in order to avoid paying capital gains tax and realize the associated tax credit or deduction. In addition, the charity will receive the full value without paying any taxes.

    Invest for the Long Run

    Cryptocurrency gains typically fall under two categories, short-term and long-term gains. Short-term gains are taxed at the ordinary income tax bracket whereas long-term gains are taxed as capital gains at a lower tax rate.

    Use an IRA or 401(k)

    Certain types of IRAs and 401(k)s are eligible to hold cryptocurrency investments. In many cases, you can deduct contributions from your current taxes or, in the case of Roth IRAs, avoid paying taxes on capital gains.

    Harvest Tax Losses

    Tax loss harvesting involves selling a losing position in the current tax year to realize the loss and offset any gains. Unlike stocks, you can immediately replace the asset in your portfolio after realizing the loss.

    Gift Crypto to Others

    You can currently give away up to $15,000 without paying taxes each year. While recipients may be liable to pay tax if they use, sell, or trade the assets, it can be a great way to share wealth with family or friends.

    The Bottom Line - Coinbase Tax Documents

    As the most widely used cryptocurrency exchange in the United States, Coinbase holds significant importance for its users. However, it's crucial for Coinbase users to stay informed about the actions taken by the IRS to address underreported cryptocurrency gains. Understanding what information Coinbase reports to tax authorities and ensuring accurate reporting of capital gains or losses is essential to avoid potential issues or complications. By staying updated and complying with tax regulations, Coinbase users can mitigate any potential problems related to their cryptocurrency transactions.

    Coinbase Tax Documents FAQs

    1. What Is Form 1099-K?

    Certain US cryptocurrency exchanges issue Form 1099-Ks. This form is issued to users with more than 200 transactions and at least $20,000 gross volume in the said year. Form 1099 k reports all the annual gross receipts coming in from cryptocurrency trading.

    2. How do I get my 1099 from Coinbase?

    Coinbase issues the IRS Form 1099-MISC for rewards and/ or fees through, Coinbase Pro, and Coinbase Prime. It must be noted that the form is available only to American citizens and non-US customers will not receive any forms from Coinbase.

    3. Do I have to report Coinbase gains on taxes?

    Yes, you'll need to report your cryptocurrency capital gains and losses on your taxes because even if you do not, Coinbase does report your crypto activity to the IRS if you meet certain criteria (you should be a Coinbase customer; a US person for tax purposes; should have earned $600 or more in rewards or fees from Coinbase Earn, USDC Rewards, and/or Staking). If you don't report your crypto activity, Coinbase still would, and not doing so would be considered tax fraud.

    4. Is Coinbase earn taxable?

    Coinbase earnings are taxable only when you transfer, sell, exchange or do something with it. Coinbase earns just sitting idly in your wallet is not taxable.

    ZenLedger easily calculates your crypto taxes and also finds opportunities for you to save money and trade smarter. Get started for free now or learn more about our tax professional prepared plans!

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    Simplifying DeFi, NFT, and Crypto Taxes for Investors and Tax Professionals

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