Coinbase taxes may sound like a contradiction. Many cryptocurrency traders think of their investments as “off the grid.” However, diversifying your crypto portfolio and making it bigger comes with the responsibility to pay taxes on Bitcoin and other popular currencies. If you’re a US trader, you need the information below to gain a basic understanding of your tax responsibilities on Coinbase.
What is Coinbase?
Just so new traders are on the same page, we want to clarify what Coinbase is. Coinbase represents the most well-trafficked crypto trading platform in the world. They offer market data and trading networks on dozens of popular currencies, including Bitcoin, Ethereum, and Litecoin. They have Pro accounts as well that further insure investments, apply analytics to your trading forecast, and help you diversify your portfolio. Coinbase is the internet’s one-stop-shop for crypto investments.
What are Coinbase Taxes?
Cryptocurrency may seem like the future of decentralized currency. However, for now, it’s still subject to the present-day realities of taxation. The IRS needs to know how you trade crypto and you need to know what they need to know.
Firstly, your ups and downs on Coinbase may seem like risk and reward but to the IRS, it’s all relevant financial activity. The IRS wants you to report income, in every form, and that includes the gains and losses you make on Coinbase.
Since crypto trading is “off the grid,” you need to be responsible for your own tax forms. Coinbase isn’t your employer and doesn’t have the forms ready for you. Regardless, they give you the resources to get your tax information accurately. You can request a 1099 form to complete your taxes. If you meet certain requirements (discussed below), you can get the form directly through Coinbase.
Even if you don’t receive this form, the IRS still holds you accountable for reporting your Coinbase activity. Thankfully, all Coinbase accounts feature detailed transaction history that you can use to fill out your taxes.
Form 1099 reports your third-party transactions to the IRS. It’s the form used for crypto exchanges because it doesn’t simply detail profits – it lists the transactions and the gross exchanges in explicit terms.
Coinbase used to issue these forms automatically, but no longer does. They now only have Form 1099-MISC for those who qualify and request it. To qualify, you need to have traded at least $600 worth of crypto the previous year, as well as be a US domestic trader on the platform. The worth of your trades counts even if your gains were in staking and other rewards, rather than currency.
Coinbase Taxes: The Takeaway for New Traders
Coinbase taxes factor into your report to the IRS. Crypto trading seems like an investment that requires less reporting than your other earnings. However, the IRS needs detailed information about your gross transaction earnings this calendar year. Go on your Coinbase account to find your complete transaction history so you can make sure to accurately report your earnings and stay in good standing with the IRS in 2021.