Wondering whether Coinbase reports to the IRS?
The question is more relevant than ever. Recently, the IRS has made it clear that cryptocurrency tax enforcement is a top priority. In previous years, the agency sent out over
to Coinbase customers. 10,000 warning and action letters
In this guide, we’ll break down everything you need to know about Coinbase tax reporting. We’ll also explain the different types of forms that Coinbase sends to customers and the IRS and what they mean for you.
How are my Coinbase transactions taxed?
As we have discussed in great detail in our
, cryptocurrency is treated as property for tax purposes. This means that capital gains and losses reporting rules apply to cryptocurrency similar to how they apply to stocks (another form of property). Complete Guide to Cryptocurrency Taxes Capital gains: If you dispose of cryptocurrency, you’ll incur a or capital gain depending on how the price of your coins has fluctuated since you originally received them. Examples of disposals include selling your cryptocurrency or trading it for other cryptocurrencies. loss Ordinary income: If you’ve earned cryptocurrency income, you’ll recognize income based on the fair market value of your coins at the time you received them. Examples of income events include earning staking or referral rewards.
that you pay on your cryptocurrency varies based on multiple factors, such as your holding period and your personal income bracket. tax rate VIDEO Does Coinbase report to the IRS?
Currently, Coinbase may issue a certain 1099 form to both you (the account owner) and the IRS if you meet certain qualifying factors. Due to the passage of the
, Coinbase and other major exchanges will likely be required to issue 1099 forms to all customers in the near future. American infrastructure bill
In addition, the IRS issued a
in 2016. The company was required to hand over data on over 8 million transactions to the tax agency. John Doe Summons to Coinbase What does the IRS do with the information Coinbase provides?
In the past, the IRS has used the information from 1099 forms to send warning letters to Coinbase users. It’s reasonable to assume that discrepancies between Form 1099 and a taxpayer’s return can increase the risk of a
. cryptocurrency tax audit What are 1099 forms? are designed to provide information to the Internal Revenue Service (IRS) about certain types of income from non-employment-related sources. Put another way, 1099 forms are designed to report income that you received that wasn’t from your employer. 1099 forms
While there are many different types of 1099 forms, we’ll focus on three relevant ones in this article.
Form 1099-K: This form is commonly used by credit/debit card networks and other payment settlement networks. The form shows the IRS the transaction volume of processed payments. Form 1099-MISC: This form is used to report ‘miscellaneous’ income to the IRS. Rewards from referrals and staking would fall into this ‘miscellaneous’ category. Form 1099-B: This form is used to share information about property/security disposals made through a broker. You may be familiar with this form if you’ve used stock exchanges like Robinhood or E-Trade. Does Coinbase send a 1099-K?
In years prior to 2021, Coinbase sent you a
if: 1099-K tax form You were a Coinbase Pro or Coinbase Prime customer You executed 200 trades or more, whose total value is equal to or greater than $20,000* (OR met your state’s 1099-K reporting thresholds) You were subject to US taxes
If you met all three of these requirements prior to 2021, Coinbase sent you
AND the IRS a copy of 1099-K.
Coinbase stopped issuing this form to customers after 2020. For more information, check out our article on
. why Coinbase stopped issuing Form 1099-K Does Coinbase send a 1099-MISC?
You will receive
if you: Form 1099-MISC Are a Coinbase.com customer Received $600 or more in cryptocurrency from Coinbase Earn, USDC rewards, and/or staking Are subject to US taxes
If you meet each of these three criteria, both you and the IRS will be sent a copy of your 1099-MISC.
1099-MISC details the amount of income you have earned from Coinbase.
What should I do if I receive a Coinbase tax form?
Here’s how you can report the income on Form 1099-MISC on your tax return.
Self-employed: If you are self-employed and your cryptocurrency activities are part of a trade or business, your Coinbase income should be reported on Schedule C. Not self-employed: If you are not self-employed, your Coinbase income can be reported as ‘Other income’ on Schedule 1.
Your Form 1099-MISC will not contain relevant tax information about disposal events, such as selling your cryptocurrency for fiat. The burden is on you to calculate your tax liability for these transactions.
CoinLedger can help. The platform can
and pull in a complete record of all the trades you’ve made during the tax year. Once you’ve imported transactions from your other exchanges and wallets, you can generate a complete integrate with your Coinbase account tax report with the click of a button. Does Coinbase send a 1099-B?
At this time, Coinbase does not issue
to customers. 1099-B forms
However, this is likely to change in the near future. The 2021 American infrastructure bill requires cryptocurrency ‘brokers’ like Coinbase to provide 1099-B forms to customers and the IRS starting in 2024.
How will Coinbase 1099-Bs impact investors like me?
1099-B forms may present problems for Coinbase customers in the future.
Because cryptocurrency is so easily transferable, investors often move their coins between different wallets and exchanges. As a result, it’s difficult for exchanges to provide their customers with accurate tax reporting information.
Consider the following scenario.
In this case, it's difficult for Coinbase to know David’s original
. As a result, Coinbase cannot accurately calculate David’s tax liability should he decide to sell his Bitcoin. cost basis
This may present a problem in the future if Coinbase is required to issue 1099-Bs. If David sells his Bitcoin for $10,000 on Coinbase, it’s likely that the gross proceeds of his sale will be $10,000 on his 1099-B. Because Coinbase doesn’t know the cost basis of David’s coins, it will likely show as n/a.
In this case, the burden of proof will be on David to prove that he bought his Bitcoin for $10,000. Otherwise, he may be on the hook for a capital gain of $10,000.
How crypto tax software can help like CoinLedger can simplify the process of reporting your Coinbase transactions. It’s easy to use and directly plugs into your Cryptocurrency tax software account. TurboTax
Sign up for an account for free, import all of your historical trades and transactions, and automatically generate tax forms like 8949 with the click of a button. The whole process takes around 15 minutes!
. Get started with a free preview report today Frequently asked questions
Let’s cap off our discussion by answering a few frequently asked questions about Coinbase taxes.
Do I pay taxes on Coinbase transactions?
Coinbase transactions may be subject to capital gains or income tax depending on the specific nature of the transaction.
Will Coinbase send me a 1099?
Currently, Coinbase sends Form 1099-MISC to customers who are based in the United States and earned at least $600 of income on the platform.
Do all crypto exchanges report to the IRS?
It’s likely that major exchanges like Coinbase will be required to issue 1099-B forms to customers and the IRS in the near future because of the passage of the 2021 infrastructure bill.
Can the IRS see my crypto wallet?
It’s likely that the IRS is closely monitoring transactions on blockchains like Bitcoin and Ethereum. In the past, the IRS has partnered with contractors like Chainalysis to analyze the blockchain and match ‘anonymous’ wallets to known individuals.
This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own crypto tax expert , CPA or tax attorney on how you should treat taxation of digital currencies.