Beginning in 2021, Paypal allowed its users to start buying and selling cryptocurrency on its platform for as little as $1.
Paypal’s user-friendly interface makes it easier than ever for new investors to dip their toes in an exciting new asset class. Of course, there’s one part of crypto investing that’s still as difficult as ever: dealing with the tax consequences.
In this article, we’ll break down everything you need to know about cryptocurrency taxes on PayPal, whether you're buying, selling, holding, or making purchases.
An Overview of Cryptocurrency Taxes
as property for tax purposes, not as currency. Like other forms of property—stocks, bonds, real estate—you incur tax obligations when you sell, trade, or otherwise dispose of your cryptocurrency. IRS treats cryptocurrencies
You must report this gain on your tax return, and pay a certain percentage of your gain on taxes. Your
fluctuates based on multiple factors, such as your tax bracket and whether it was a short-term vs. a long-term gain. This applies for all cryptocurrencies. crypto tax rate
For a deep dive into the fundamentals of crypto taxes, check out our
. Complete Crypto Tax Guide
What Does This Mean For PayPal Crypto Users?
Just like with any cryptocurrency exchange, PayPal users who sell or otherwise dispose of their cryptocurrency on the PayPal cryptocurrency hub will incur tax reporting requirements.
Your gains and losses ultimately need to be reported on
and submitted with your tax return each year. IRS Form 8949
As a result of these requirements, thousands of crypto users are turning to specialized
to automate the tax reporting process. It’s likely this trend will continue with PayPal’s entrance into the scene. crypto tax software What if I Use My Crypto to Make a Purchase?
Paypal currently offers a Checkout with Crypto feature. By using the feature, PayPal customers can convert their cryptocurrency into fiat during the checkout process and use it for payment.
Remember, converting cryptocurrency for fiat is considered a taxable event. You incur capital gains or losses depending on how the price of your crypto has fluctuated since you originally received it.
The Catch - PayPal is Not Allowing Crypto Deposits or Withdrawals At This Time
Similar to other fintech giants that have already added cryptocurrency capabilities to their applications (i.e.
, Revolut), PayPal explains in its Robinhood crypto documentation that it currently does not allow users to make cryptocurrency deposits and withdrawals on its platform.
Essentially, your crypto is stuck inside PayPal, and you can only hold it on the platform.
While this is extremely “anti-crypto” and goes against the fundamental tenets of cryptocurrency such as self-custody and peer-to-peer transfer, this does mean that tracking
will actually be easier for PayPal crypto users—which in turn makes tax reporting easier. cost basis
The cost basis tracking and reporting problems that are present in the traditional crypto world stem from the transferable nature of the asset. In the case of PayPal, if you can’t transfer your crypto in or out of the platform, it becomes fairly easy to track your cost basis and report your taxes.
We dive deep into the cost basis tracking problem that is present in traditional crypto markets in this blog post here:
. The Crypto Tax Problem Does PayPal report to the IRS?
In its crypto documentation, PayPal explains that it participates in relevant
for users that buy, sell, and transact in cryptocurrency on its platform. 1099 information reporting
1099 information reporting has been around for a long time. There are nearly two dozen different types of 1099’s in existence today (1099-B, 1099-K, 1099-DIV, etc.), and each of them serves the same general purpose: They exist to provide information to the Internal Revenue Service (IRS) about certain types of income from non-employment-related sources.
At this time, PayPal sends
if a user has more than 200 transactions for the year and their gross payment volume exceeds $20,000. These forms are sent to both the user and the IRS. 1099-K forms
However, these forms only show users’ gross proceeds in a given tax year. To properly
, investors need to keep records of each individual cryptocurrency transaction. This information can be found in your transaction history and account statements. report crypto taxes
According to PayPal, your account statements will show you your gains and
disposals using the HIFO method. For more information, check out our losses on cryptocurrency . guide to HIFO and other accounting methods File your cryptocurrency taxes today
Here at CoinLedger, we’re dedicated to helping you accurately report all your crypto transactions on your taxes — whether you’re using PayPal or a native cryptocurrency exchange like Coinbase or Kraken.
Join the 300,000+ investors who use the CoinLedger platform to make filing their crypto taxes feel stress-free. . Register for a free account today