It’s the tax season and as you try and figure out your tax bill, you’ll come across several forms that will try to gather information about your crypto investments. Be it staking, selling, or HODLing, calculating your taxes can be sometimes tricky, even for experienced tax professionals.
When the Internal Revenue Services (IRS) demands, crypto exchanges such as Coinbase have to directly report certain activities to the IRS with the help of certain forms. Coinbase will also provide a copy of the form to its users a.k.a you and as a taxpayer, it is your duty to report all taxable activities while reporting taxes. So, when does Coinbase report to the IRS? Coinbase tax reporting takes place well ahead of the annual tax season and crypto taxes occur at the same time as income taxes.
Let’s break down a few forms you might receive from Coinbase for crypto taxation. We will elucidate each form, the reason behind receiving it, and when you might need it.
Crypto can either be taxed as an income (a federal tax on your earned income) or as a capital gain (a federal tax you made by selling certain assets).
What if you earned a reward by staking crypto? If you made $600 in crypto, Coinbase is required to use Form 1099-MISC to report your transactions to the IRS as “miscellaneous income.” Even if you make less than $600 via staking or rewards income, you are required to report the earned amount on your tax bill.
Crypto exchanges and brokers are only required to report miscellaneous income to the IRS, but as a taxpayer, you have to report all your capital gains and losses while filing your taxes.
Prerequisites of Calculating Gains/losses
Coinbase tax reporting begins by calculating your gain/loss, which is a summary of your transactions executed on Coinbase that ended in a gain or loss. This is what you’ll see:
- Coinbase calculates capital gains/losses of every recorded transaction by subtracting the cost basis (the price at which you bought or received your tokens) from the proceeds you received.
- To calculate your gains and losses, Coinbase leverages an accounting method known as “highest in, first-out” (HIFO). This means your assets that are the highest cost are sold first resulting in a lower tax bill. It is just one way of calculating your cost basis out of several others. Using a different method could affect your return and thus consulting a tax professional is highly recommended.
- Coinbase will only include transactions made on the platform using your Coinbase account. Transactions made on platforms such as Coinbase Pro, Coinbase Wallet, or Coinbase Prime won’t be included.
- If you bought crypto from another platform and sold it on Coinbase, consult a tax professional as Coinbase will not have the required information about the cost basis.
If you are new to filing your taxes and you wish to do your taxes, or just curious about other forms, here’s a quick rundown:
- Form 1040: Also called the U.S Individual Income Tax Return, this form is used to calculate total taxable income.
- Form 8949: It is relevant if you have capital gains or losses from converting, selling, or disposing of your crypto. Schedule 1 – This part of the form is known as Additional Income and Adjustments to Income. This form is used to report mining, staking or other income reported on the Form 1099-MISC.
- 1040 Schedule D: This form is usually referred to as “Schedule D.” This form summarises your Capital Gains/Losses.
In the past few years, the IRS has taken strict measures to enforce the audit of cryptocurrency taxation. They are sending several letters and notices to the taxpayers to ensure that they are paying their crypto taxes. Form 1099-K and 1099-MISC are helping the IRS filter people who are lagging in their tax reports or if they are under-reporting.
This is also happening across the pond in the UK. Hodge Bakshi commented “HMRC have started to actively enquire and are working with many well-known Crypto platforms and exchanges to ascertain who may have tax to pay on their Cryptoassets.”
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
Coinbase Tax Reporting – FAQs
1. Do you have to pay taxes on Coinbase?
If you made $600 in crypto by an exchange such as Coinbase, the exchange is required to use Form 1099-MISC to report your transactions to the IRS as “miscellaneous income.” As a taxpayer, you will also receive a copy of your tax returns.
2. Do you have to pay taxes on crypto every year?
Yes, be it Bitcoin, Ethereum, or any other cryptocurrency, they are all taxable. The IRS deems cryptocurrency as property and thus, crypto is taxed like property the same way as any other asset you own.
3. Does Coinbase give you 1099?
If you made $600 in crypto, Coinbase is required to use Form 1099-MISC to report your transactions to the IRS as “miscellaneous income.” Even if you make less than $600 via staking or rewards income, you are required to report the earned amount on your tax bill.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.