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

Coinbase is the most popular crypto exchange in the United States with over 50 million users. While many exchanges cater to enthusiasts, Coinbase targeted mainstream consumers with its easy-to-use app and regulatory compliance. The company also has a $255 million insurance policy and has never been successfully hacked—unlike many of its competitors.

While it has a pristine security and compliance record, the company has seen its fair share of controversies over the past few years. The company turned over the records of 13,000 users with at least $20,000 in any one transaction type between 2013 and 2015 to the IRS, and more recently, began submitting 1099-Ks to the IRS for high-value customers.

Let’s take a look at what Coinbase users should know about Coinbase tax documents and what forms you should provide accountants.

Does Coinbase Report to The IRS? IRS Targets Cryptocurrency Holders

The IRS (International Revenue Services) estimated that about 2.5% of the $450 billion tax gap—or more than $11 billion—came from unreported cryptocurrency tax liabilities in 2018. In the same year, the tax agency filed a lawsuit against Coinbase to unveil the identities of about 13,000 customers engaged in high-value transactions in an attempt to track down some of these unreported tax liabilities.

In 2019, the IRS sent over 10,000 letters to taxpayers that it suspected of under-reporting cryptocurrency liabilities and updated tax form 1040 with a question regarding cryptocurrencies. By adding the mandatory question, the IRS is both gathering data and setting a trap of sorts for taxpayers, since lying on a tax document or incorrect tax reporting is perjury—a felony under federal law.

The tax agency also began to engage blockchain experts in order to track down taxpayers that may have tried to hide crypto tax liabilities to avoid paying what they owe. In May 2020, the IRS sent out a statement of work to request help from independent blockchain experts to reconcile taxpayers’ reported crypto capital gains and losses on tax returns.

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

Coinbase filed 1099-Ks for qualifying customers with 200 transactions whose total value exceeds $20,000 and that meet other criteria for the tax years 2017 through 2019. These forms report the aggregate value of transactions on Coinbase—not total capital gains or losses—and are automatically sent to the IRS to provide them with an idea of trading activity.

Many Coinbase users were confused by the 1099-Ks and ended up overpaying taxes since the form doesn’t include the original cost basis of transactions or other associated expenses. Without using a crypto tax solution or accountant, many users may have paid taxes on the gross amount rather than calculating their lower capital gain amount.

In 2020, Coinbase said that it will issue 1099 MISC for U.S. customers that received more than $600 in cryptocurrency through Coinbase Earn, USDC rewards, and/or staking income for the year. It must be noted that it is unclear if Coinbase will report regular cryptocurrency trading activity, such as cashing out crypto or exchanging currencies, on Form 1099-MISC.

Crypto Taxes: How To Make Sure You’re Paying The Right Amount?

Coinbase users that sold cryptocurrencies for a gain or loss, converted one cryptocurrency to another or earned $600 or more in rewards may be on the hook for federal or state taxes. The second point—crypto-to-crypto transactions—is the most common source of confusion among taxpayers. You owe capital gains even if you didn’t sell crypto for cash.

Coinbase recommends the use of third-party crypto tax software to accurately calculate capital gains or losses. While it’s possible to reconcile transactions by hand, crypto tax software automates the process to ensure that no transactions are missed, and every calculation is done correctly. That way, you can avoid any potentially costly mistakes.

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 ZenLedg

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:

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.

Unlike other black box crypto tax solutions, ZenLedger is transparent about how calculations are made in order to support taxpayers in the event of an audit. You can easily generate a grand unified accounting spreadsheet that includes your entire transaction history across all wallets and exchanges along with the associated tax calculations.

If you need professional support, ZenLedger can introduce you to a crypto tax professional (e.g., a tax attorney, CPA or Enrolled Agent) to get your crypto and non-crypto taxes done quickly and accurately using the smartest tax strategies. These plans range from $750 to $2,500 per year depending on your number of transactions, total asset value and number of tax forms.

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 is the most popular crypto exchange in the United States. Over the past few years, the IRS has been cracking down on underreported cryptocurrency gains. Coinbase users should be aware of what the exchange is reporting to tax authorities and how to accurately report their capital gains or losses to avoid any potential problems.

Coinbase Tax Documents FAQs

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!