Crypto Taxes and Accounting

Does Coinbase Report to the IRS? The Ultimate User’s Guide to the 1099 Form

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September 13, 2021
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    Once considered the Wild West of currencies, cryptocurrency has joined the ranks of traditional forms of wealth like property, stocks, and income from employers, and is now taxed and regulated by the IRS. This has resulted in some confusion around the tax practices of different cryptocurrency platforms, resulting in one of the most common questions about taxing and cryptocurrency: Does Coinbase report to the IRS? 

    Because it’s still such a new and exciting venture, there’s some confusion about how to report gains and losses from crypto-selling. It’s incredibly important to track and report all cryptocurrency transactions to avoid a crackdown from cryptocurrency platforms and the IRS. 

    The Big Question: Does Coinbase Report to the IRS?

    The answer? Yes. Coinbase, the top cryptocurrency exchange in the United States, began submitting 1099 forms to the IRS and individual users in 2017. Though the company stands out as one of the safest and most secure platforms for cryptocurrency selling and trading, it has butted heads with the IRS in the past. 

    In 2018, the IRS filed a lawsuit against Coinbase in an attempt to identify 13,000 customers who may have underreported their cryptocurrency gains. The following year, the IRS sent over 10,000 letters to taxpayers who were suspected of underreporting cryptocurrency liabilities. In 2018, the agency estimated that over $11 billion dollars of taxes went unreported from cryptocurrency transactions. 

    All of this is to say, Coinbase takes tax reporting very seriously – and so should you. Continue reading this guide to learn more about Coinbase tax reporting, what to do with a 1099 form, and how you can manage taxes on all of your cryptocurrency income made on Coinbase. 

    Coinbase Tax Reporting: When Does Coinbase Report to the IRS? 

    Coinbase tax reporting occurs ahead of the annual tax season, and taxes on cryptocurrency transactions are due at the same time as income taxes. 

    1099-MISC form

    1099 forms are used to report any and all income that does not come from an employer. In the case of cryptocurrency gains and losses, Coinbase will send you this form if you: have a coinbase.com account, have earned over $600 in cryptocurrency from Coinbase Earn, USDC Rewards, and/or Staking, and are responsible for paying US taxes. 

    So while the answer to does Coinbase report to the IRS is that yes it indeed does, it must be noted that the forms that Coinbase reports to the IRS only provide a general look at the total income from cryptocurrency transactions. It’s on the individual to provide specific details around each transaction. To ensure you provide the correct details, be sure to carefully track and record all transactions, sales, and exchanges. 

    It’s important to note that even if you don’t receive a 1099-MISC form, you are still responsible for reporting your gains and losses to the IRS. 

    1099-K 

    Until 2021, Coinbase reported 1099-K forms to the IRS and to users who executed over 200 trades with a total value equal to or greater than $20,000, and who were responsible for paying US taxes. These forms reported aggregate data around transactions, rather than specific transactions, and were retired by the company at the end of 2020. 

    How Is Cryptocurrency Taxed? 

    Cryptocurrency is categorized as property under federal tax laws, which means it’s taxed as a capital asset when Coinbase or other platforms report to the IRS – very similar to how you report and are taxed on stocks.  

    Put simply, come tax season you owe taxes on any increase in value and can write off any decrease in value. If you buy Bitcoin that is valued at $10,000 and sell it at $20,000, then you owe capital gains tax on the $10,000 profit. The exact tax rate depends on whether the gain is long- or short-term, and your overall income tax bracket.

    Conversely, if you buy Bitcoin valued at $20,000 and sell it at $10,000, you can write off up to $3,000 to offset other gains on your taxes. 

    If you regularly trade or sell cryptocurrency, and have a significant number of transactions in the space, we recommend working with a tax professional specializing in cryptocurrency to ensure your Coinbase taxes are reported accurately. 

    For those with simpler taxes, we recommend using a program like TurboTax to help you with the process. ZenLedger integrates with your TurboTax account to import transactions across multiple wallets and exchanges for an easy and streamlined experience. If you have any questions, please reach out to us at hello@zenledger.io. We’d love to help you out! 

    TL;DR: Coinbase Tax Reporting 

    Does Coinbase report to the IRS? Yes. Coinbase will report your transactions to the IRS before the start of tax season. You will receive a 1099 form if you pay US taxes, are a coinbase.com user, and report cryptocurrency gains of over $600. Even if you don’t qualify for this form, you are still required to report all cryptocurrency transactions to the IRS every tax season.

    FAQs

    1. Do you have to pay taxes on Bitcoin if you don't cash out?

    No, you do not have to pay taxes on your Bitcoin if you just hold it and do not sell, trade, exchange or cash it. However, in the event of disposal of your Bitcoin or any other cryptocurrency by selling, trading, exchanging, or cashing it, you will owe taxes on the realized value; provided the realized value is greater than the price of acquisition. The taxes will be on the capital gain at either short-term or long-term rates.

    2. Do I need to report crypto if I didn't sell?

    No, you do not have to report your cryptocurrency unless you withdraw/ trade/ sell/ cash it. This is because the IRS considers cryptocurrency as a ‘property’ that needs to be declared only in the event of earning capital gains on it.

    3. How do you avoid US taxes on Crypto?

    The one and only way to avoid paying taxes on your cryptocurrency in the US is by purchasing it inside of an ITA 401-k defined benefit or inside another retirement plan. Buying cryptocurrency under a traditional IRA will automatically eliminate the holder from tax liability unless the holder begins to take distributions.

    4. When does Coinbase report to the IRS?

    For every U.S. crypto trader that makes more than $600 in crypto rewards or staking in the previous financial year, Coinbase will send two copies of Form 1099-MISC: One to the taxpayer and one to the IRS.

    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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