Coinbase Taxes Explained
Coinbase is an online platform where people can invest and trade hundreds of cryptocurrencies, but what they may not realize, is that, just like other investment gains, they are responsible for paying taxes on any cryptocurrency income earned throughout the tax year.
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Key Takeaways:
- Coinbase activities are taxed at different rates depending on whether it is classified as ordinary income or capital gains.
- Coinbase capital gain and loss is determined by finding the difference between the value of the cost basis, or how much the crypto was purchased for, and the proceeds, or how much the crypto was sold for.
- Only U.S.-based Coinbase users who earn $600 or more in crypto income will receive IRS 1099-MISC tax forms to report their earnings to the IRS during the tax season. Taxpayers who do not receive tax documents for Coinbase are still required to report cryptocurrency on their tax returns.
- The Coinbase Taxes portal on the Coinbase website only reflects activity on the direct website, so if the taxpayer also uses Coinbase Pro or Coinbase Wallet, they will need to access the Statements section of Coinbase Pro to access information about that transaction activity.
How Do Coinbase Taxes Work?
Any income earned throughout the tax year, whether from your regular 9 to 5 job, side hustle, or investments, must be reported to the IRS so you can pay taxes, which is no different from income through cryptocurrencies. Cryptocurrency is considered a digital asset in the United States, so taxpayers are required to report all of their cryptocurrency transactions, including their crypto sales, income, conversions, and payments, and depending on the type of transaction, there are different tax implications that impact how the information must be reported.
Who Has To Pay Coinbase Taxes?
The taxes owed on Coinbase assets are dependent on how the taxpayer used their crypto, and therefore, whether the crypto transactions were taxable events or non-taxable events. When it comes to cryptocurrency-related taxes, there are two taxation methods that taxpayers in the United States should be aware of, including ordinary income and capital gains tax. Depending on how the crypto is classified, it will be taxed at different tax rates.
It can be complicated to figure out how to classify crypto transactions, so if you are confused, it is beneficial to seek advice from an experienced crypto tax lawyer to ensure you are reporting accurately.
Taxable As Ordinary Income
In the context of cryptocurrency, ordinary income
- Receiving payment in the form of cryptocurrency
- Accepting crypto as payment for goods or services
- Mining cryptocurrency
- Staking rewards
- Earning other reward income
- Receiving cryptocurrency from a hard fork
- Receiving a cryptocurrency airdrop
- Receiving other free crypto rewards or incentives
Taxable As Capital Gains
- Selling crypto for U.S. dollars
- Converting one type of crypto to another
- Using crypto to purchase goods and services
Not Taxable
- Buying and owning cryptocurrency with cash and holding it
- Donating cryptocurrency to a verified non-profit or tax-exempt charity
- Receiving crypto as a gift
- Giving crypto as a gift
- Transferring crypto to a different wallet or account that you own
Trading Fees
- Trading fees are included in the cost basis, or what the taxpayer paid for the cryptocurrency. However, they are excluded from the proceeds, or what taxpayers earn from selling or trading cryptocurrency.
Crypto Donations
Donating cryptocurrency as a charitable contribution may be valid to claim as a tax deduction when taxpayers file their income tax returns.
The Coinbase-recommended platform for donating cryptocurrency is through GiveCrypto, a nonprofit that distributes crypto to people living in poverty.
It is beneficial to consult with a tax professional to understand how cryptocurrency donations impact their tax situation.
How To Calculate Coinbase Gains And Losses?
To calculate Coinbase gains and losses, taxpayers must consider the cost basis, or how much they paid for an asset, and the proceeds, or how much the asset was sold for. The difference between these two values is the gain or loss.
Taxpayers must also consider whether the capital gains were short-term or long-term when calculating their gains and losses, as how long the taxpayer has held onto their crypto impacts how much they will owe in taxes.
Short-Term Gains:
- Used for assets held for less than a year
- Taxed at the taxpayer’s ordinary income rate
- Usually a higher, less-favorable rate than long-term gains
Long-Term Gains:
- Used for assets held for more than a year.
- Taxed at a reduced capital gains rate
- 0%, 15%, or 20% at the federal level, depending on the taxpayer’s income
- Taxpayers with higher incomes may also be subject to the 3.8% Net Investment Income Tax on their other income or gains
How To File Coinbase Taxes
The Coinbase Taxes section of the Coinbase website allows taxpayers to access everything they need to file Coinbase taxes, as well as learn which activity on the Coinbase website is considered taxable income, the gains or losses on their investments, how much income they earned, and which tax forms will be needed to file.
Download Coinbase Tax Reports
Taxpayers can access all the tax-related information they need regarding their cryptocurrency investments directly on the Coinbase Taxes section of their website. Within their online portal, people can view all of the available 1099 forms and their gain/loss reports, if relevant. The custom reports section will also provide information about their raw transaction history.
Here is how to download tax reports from the Coinbase website:
1. log in to your Coinbase account.
2. Select the person icon and click on Taxes.
3. Click on Documents.
4. Click Custom Reports and select the type of report needed.
4. Click Download.
It is beneficial to note that Coinbase Taxes only reflects activity on the Coinbase website, and does not include activity through Coinbase Wallet or Coinbase Pro, a platform that is more tailored to professional traders. Instead, this information must be accessed through the Coinbase Pro Statements section.
The tax identification number (TIN) for Coinbase may be needed for filing taxes since the earnings on this platform are paid to the taxpayer from Coinbase directly: 45-5293997
Tax Form 1099-MISC
Certain taxpayers who invest in cryptocurrencies using the Coinbase platform will be sent a 1099-MISC tax form to be filed during the tax filing season.
Here are the criteria for filing Coinbase taxes with a 1099-MISC tax form:
- Being a Coinbase customer
- Being required to file taxes in the U.S.
- Earning $600 or more in miscellaneous income through Coinbase, such as rewards, fees, staking, Learning rewards, and USDC rewards.
Tax Form 8949
Taxpayers who have experienced gains or losses in their cryptocurrency investments can detail these sales using IRS Form 8949. The final calculation of these transactions is dependent on asset identity, date acquired, date sold, cost basis, proceeds, short vs. long term, and gain or loss.
Taxpayers who file their own taxes or file with a CPA will likely need to report their gain/loss activity using IRS Form 8949, but customers who use tax filing software like H&R Block or TurboTax usually do not need to provide this tax form. If taxpayers subscribe to Coinbase One, they are eligible to receive a pre-filled Form 8949 from Coinbase.
Common Cryptocurrencies On Coinbase
There are hundreds of cryptocurrencies available to invest in using the Coinbase website. Some of the most popular include:
- Bitcoin
- Bitcoin Cash
- Bitcoin Gold
- Ethereum
- Ethereum Classic
- Litecoin
- Ripple
- Iota
- Stellar Lumens
- EOS
- Dash
- Cardano
- VeChain
- Monero
- Tron
- NEM
- Lisk
- Qtum
- Neo
- OmiseGO
The Coinbase website offers a wealth of information for individuals to learn about crypto payments, crypto exchange, and crypto basics tips, but that doesn’t take away from the fact that crypto taxes can be confusing. If you want help from a tax professional to report your Coinbase activity on your tax return, the experts at Ideal Tax are here to help. Set up a free consultation today for tax advice about how to accurately report your crypto activity in your tax reporting.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
