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, Coinbase tax documents, 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 Taxes 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.
Coinbase 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, if you’re wondering would Coinbase send you 1099, they sure will 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.
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 [email protected]. We’d love to help you out!
Does Coinbase Issue Form 1099-K?
Before 2021, Coinbase issued Form 1099-K to its users if:
- They were Coinbase Prime customers or Coinbase Pro
- They execute more than 200 trades with a total value of $20,000 or more
- They were liable to US taxes
Assuming a taxpayer meets all these requirements, COinbase sent them as well as the IRS the Form 1099-K. The exchange stopped sending these forms to its customers after 2020.
What to do if You Get a Coinbase Tax Form?
If you receive a tax form from Coinbase, this is how you show the income on 1099-MISC:
Self-employed: A self-employed person whose crypto activities are a part of their business has to report their Coinbase on Schedule C.
Employed: An employed taxpayer’s income from Coinbase has to be reported on Schedule 1 as “Other Income.”
The Form 1099-MISC doesn’t contain relevant information for taxation such as disposal or selling crypto tokens for fiat. You have to manually determine the tax liability for these trades.
This is where ZenLedger can help in Coinbase IRS reporting. ZenLedger can integrate with Coinbase and access the complete records of your trades. After you import all your transactions from other wallets and exchanges, you can create your tax report with a single click.
Does Coinbase Issue Form 1099-B?
Coinbase does not send Form 1099-B to its users at the moment. However, it might change from the year 2024 as the 2021 American Infrastructure Bill needs exchanges such as Coinbase to send Form 1099-B to both the taxpayers and the tax authority.
How will Coinbase Form 1099-B Influence Investors?
Form 1099-B might pose some challenges for Coinbase users. The reason is the easy transferability of cryptocurrency. Traders and investors transfer their tokens frequently between different exchanges and wallets. Thus, it is challenging for exchanges to give accurate tax reporting details to their customers.
Let’s understand this with an example.
Ross buys $10,000 worth of Bitcoin from BlockFi and then moves it to Coinbase. In this scenario, Coinbase doesn’t know Ross’ original cost basis. Therefore, Coinbase cannot determine Ross’ tax liability accurately if he decides to sell his tokens.
This might pose a challenge for Coinbase if the exchange needs to send Form 1099-B in the future. If Ross decides to sell his tokens for $10,000 on the current exchange, the gross earnings will likely be $10,000 on Form 1099-B. Since Coinbase can’t determine Ross’s cost basis, it will be shown as n/a.
Here, Ross has to show proof that he bought BTC for $10,00 or his capital gain will be shown as $10,000.
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 tax form from Coinbase 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.