Making cryptocurrency transactions with CoinBase

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Crypto and bitcoin taxes in the US

Did you sell, use, or convert crypto? If so, you may owe taxes if you’re a US taxpayer. Here’s a look at what that could mean, the steps you may have to take, what forms you’ll need, and how gains and losses might affect your taxes.

First, let’s get this out of the way.

Coinbase doesn’t provide tax advice. We put this guide together for informational purposes only and it shouldn’t be considered tax advice or an individualized recommendation. Please consult a tax-planning professional regarding your personal tax circumstances.

The million- dollar crypto question

1.1 Do I have to pay crypto taxes?

At Coinbase, we see crypto as the foundation for tomorrow’s open financial system — but it’s also a part of today’s traditional one. To answer the many questions on crypto and taxes, the IRS has issued crypto tax guidance.

In previous tax seasons, we received a lot of questions from crypto newbies and experienced customers alike. We get it — paying bitcoin taxes and other crypto taxes can be confusing. While we can’t give tax advice, we want to make crypto easier to buy, sell, and use. This guide is our way of helping you better understand your 2020 crypto tax obligations.

There’s a lot of conflicting content out there, but make no mistake: you are required to report gains and losses on each cryptocurrency transaction or when you earn cryptocurrency, even if there is no gain or loss or the gain or loss is not material. The IRS holds you responsible for reporting all income and transactions whether you receive a tax form from a crypto exchange or not. Exchanges like Coinbase provide transaction history to every customer, but only customers meeting certain mandated thresholds will also receive an IRS Form 1099-K.

One quick note if you’re a non-US investor: crypto taxes are treated differently country-to-country. This guide only covers the US. Unless you happen to have some US tax obligations (this is rare) be sure to consult your local country tax advisor to confirm your tax reporting obligations at your home jurisdiction.

In a nutshell.

All crypto sells, conversions, payments, donations, and earned income are reportable by US taxpayers

The reason that buying and selling crypto is taxable is because the IRS identifies crypto as property, not currency. As a result, tax rules that apply to property (but not real estate tax rules) transactions, like selling collectible coins or vintage cars that can appreciate in value, also apply to bitcoin, ethereum, and other cryptocurrencies.

To no one’s surprise, the IRS isn’t kidding around. Failure to report income, including income from the sale of crypto, could result in interest on unpaid taxes and penalties. Please consult with a tax-planning professional regarding your individual reporting obligations.

With all that in mind, here’s our list of five steps you can take to help you understand if you may need to pay crypto taxes, how to determine the amount, and what forms you may need. Let’s dive in.

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Steps to take

2.1 Determine if you owe crypto taxes

Even if you’re in the “Just HODL it” camp, it’s worth evaluating your crypto transactions to determine if you may owe taxes.

What’s taxable

In short, a lot. Here are some examples of taxable crypto events:

Selling crypto for cash

In other words, realizing the gain on your crypto property (don’t forget losses could help with your tax bill)

Making cryptocurrency transactions with CoinBase

The wallet offered by CoinBase allows you to store, send and receive cryptocurrencies easily, quickly and safely.

Sending bitcoin, ethereum or litecoin from your wallet can be completed in just a few steps.

Sending cryptocurrency from your CoinBase wallet

  1. Navigate to the Send tab of your account.
  2. Choose the wallet you want to send from, effectively choosing what cryptocurrency you’re sending.
  3. Enter the amount you’d like to send.
  4. Enter the address you wish to send funds to.
  5. Send funds.

Sending crypto from the Coinbase wallet

An interesting feature of the CoinBase wallet is that you can send crypto not only to someone else’s wallet but, by typing the recipient’s e-mail, to any owner of a CoinBase account.

Receiving cryptocurrency to your CoinBase wallet

Wallet address for receiving cryptocurrency

Navigate to your “Accounts” tab. Then, find the corresponding wallet to which cryptocurrency you wish to receive and click the “Receive” button. That’s all.

You will then be provided with your account’s wallet address. Use this address in the send field or scan the displayed QR code to receive cryptocurrency.

Be careful with whom you are sending your money from CoinBase

CoinBase has been known to track where their users send their cryptocurrency and ban users for certain transfers. CoinBase has shut down accounts for the following activities:

  • Sending cryptocurrency to gambling sites.
  • Sending cryptocurrency to LocalBitcoins.
  • Sending cryptocurrency for darknet purchases.

In situations where CoinBase has closed accounts, users are almost always paid back to their bank accounts.

„While we’re not condoning using cryptocurrency for illegal activity, we don’t think a third party business should decide how you can spend your cryptocurrency. This is another reason the community recommends storing your cryptocurrency in a wallet, you control.“ (CoinBase)

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

Does Coinbase Report to the IRS?

In 2020, the IRS made it clear that they are making cryptocurrency tax enforcement a priority. The tax collecting agency sent out over 10,000 warning and action letters to early Coinbase customers who may or may not have been accurately filing their crypto gains and losses on their taxes. These actions from regulators have many U.S. individuals wondering how the IRS is aware of their cryptocurrency transactions and ultimately asking the question: Does Coinbase report to the IRS?

The Tax Implications of Cryptocurrency

As we have discussed in great detail in our Complete Guide to Cryptocurrency Taxes, 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).

For example, if you bought 0.1 BTC for $1,000 and then sold it two months later for $2,000, you have a $1,000 capital gain. This gain is a form of income. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies for all cryptocurrencies.

Does Coinbase Report to the IRS?

In short, it depends.

Coinbase sends a certain 1099 to both you (the account owner) and the IRS if you meet certain qualifying factors.

1099-K

As detailed on their tax resource page, you will be eligible to receive a 1099-K if:

  1. You are a Coinbase Pro or Coinbase Prime customer
  2. 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)
  3. You are subject to US taxes
    ‍

If you meet all three of these requirements, Coinbase will send you AND the IRS a copy of 1099-K.В

NOTE – 1099-K reports your gross transaction proceeds from Coinbase. It does NOT report your gains and losses. 1099-K is not the document you use for reporting your crypto taxes. Learn everything you need to know about your 1099-K from Coinbase here.

1099-MISC

You will receive Form 1099-MISC if you:

  1. Are a Coinbase.com customer
  2. Received $600 or more in cryptocurrency from Coinbase Earn, USDC Rewards, and/or Staking in 2020
  3. 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. This income needs to be reported on your taxes.

What’s the purpose of these 1099s anyway?

1099 information reporting has been around for a long time, and it doesn’t come as a surprise that more and more cryptocurrency exchanges are starting to incorporate 1099 information reporting. There are exactly 20 different types of 1099’s in existence today (1099-K, 1099-MISC, 1099-B, 1099-DIV, etc.). Each of them serve the same general purpose: to provide information to the Internal Revenue Service (IRS) about certain types of income from non-employment-related sources.

Put another way, 1099’s are sent out to report on the income that you received that wasn’t from an employer.В

In the U.S., income is taxable. Sadly, there’s no way around this…

The income that you earn from cryptocurrency investing is no different, and these 1099’s give both you and the IRS records of this income. If the IRS receives a 1099 detailing income that you did not report on your taxes, it’s automatically flagged.

But you said that 1099-K is useless for tax reporting, right?

And don’t worry, we’re as frustrated as you.

1099-K is an extremely misleading form that cryptocurrency exchanges are sending out to cover their bases from a regulatory and liability standpoint. The unfortunate thing is that 1099-K provides no information on your gains and losses (which is what actually needs to be reported from a taxpayer perspective).

To report your crypto taxes properly, you need to complete Form 8949. You can read our blog post detailing how to report crypto on taxes for a step-by-step walkthrough of this process.

Still confused? No problem. Our team here at CryptoTrader.Tax has been doing this whole crypto tax thing for a long time. Too long… We are happy to answer any of your cryptocurrency tax related questions! Just send us a chat on our live chat widget in the bottom right corner.

Cryptocurrency Tax Software

Cryptocurrency tax software like CryptoTrader.Tax is built from the ground up to automate the entire cryptocurrency tax reporting process. It’s easy to use and plugs right into your TurboTax account.

Sign up for an account for free, import all of your historical trades and transactions, and generate your filled out tax forms like 8949 with the click of a button. The whole process will take you about 15 minutes. Learn how it works right here.

In Conclusion

Yes, Coinbase does report your crypto activity to the IRS if you meet certain criteria. It’s very important to note that even if you do not receive a 1099, you are still required to report all of your cryptocurrency income on your taxes. Not doing so would be considered tax fraud in the eyes of the IRS.

If there are any questions that our team can help answer, don’t hesitate to reach out!

‍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.

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