Founded in 2012, Coinbase is an easy-to-use crypto trading and investing platform. It is a fully licensed and regulated platform that provides its users the ability to buy/sell/exchange over 100 crypto tokens. One of the most distinguishing factors of this exchange is its beginner-friendly, easy-to-use platform with simple buy and sell orders. But, does it maintain the same simplicity while filing Coinbase taxes? Let’s find out.
Connecting your Coinbase Address to ZenLedger For Your Coinbase Tax Report
As one of the most comprehensive cryptocurrency tax software options on the market, we have import instructions for well over 400+ exchanges.
Within ZenLedger, on the Import Transactions page and Exchanges tab, select the Exchange you want to import. Then you’ll see a table that outlines the possible methods. For many centralized exchanges, we support a direct API code import, while others may require a CSV import. Decentralized exchanges may require a wallet address.
To import your transactions from an exchange, simply navigate to the “Exchanges” tab of the “Imports” page. Select the exchange that you are looking to import, and instructions will be provided for that specific exchange!
With that out of the way, let’s quickly take a look at how cryptocurrency is taxed.
How is Cryptocurrency Taxed?
According to the IRS, cryptocurrencies are treated as property. Even other governments around the world consider them property such as stocks, real estate, and bonds. And just like these forms of property, these digital tokens are subjected to both capital gains and income taxes.
If you sell your digital assets, you’ll either incur a capital gain or a loss. If you trade it for other crypto tokens or use it to buy goods or services, the same rule applies and you have to report these taxable events on your tax return.
In the meantime, if you earn crypto via mining, staking, or interest rewards, these forms of income will be deemed as personal income and will be taxed accordingly.
How to Do Your Crypto Taxes?
For calculating your crypto taxes, you need to determine your gains and losses from your investments in your native fiat currency such as the US dollar or the Euro.
After calculating your taxes, you have to fill out the necessary tax forms as per your country of residence.
Managing taxes related to cryptocurrency transactions, including those on Coinbase, requires careful consideration. Here are some key points to keep in mind:
- Taxable Events: Various cryptocurrency transactions can trigger taxable events, such as selling or exchanging crypto for fiat currency, trading one cryptocurrency for another, and receiving cryptocurrency as income. Each of these events may have tax implications.
- Record-Keeping: It’s essential to maintain accurate records of your cryptocurrency transactions. Coinbase provides transaction histories and tax reports that can assist you in tracking your crypto activities.
- Tax Reporting Tools: Coinbase often offers tools or features to assist users in preparing their tax reports. Utilize these tools to simplify the process of calculating gains, losses, and other relevant information for tax purposes.
- Tax Categories: Understand the different tax categories, including short-term and long-term capital gains, and how they apply to your crypto transactions. Holding periods can affect the tax rate applied to your gains.
- Consult a Tax Professional: Cryptocurrency tax regulations can be complex and vary by jurisdiction. Seeking advice from a tax professional who specializes in cryptocurrency taxation can help ensure compliance and optimize your tax situation.
- Filing Requirements: Be aware of the tax filing requirements in your jurisdiction. Some countries require specific reporting for cryptocurrency transactions, and failure to comply may result in penalties.
Interest and Staking Rewards Taxes
At the moment, Coinbase provides staking on a select few coins. Staking rewards are deemed as personal income and are also taxed accordingly. In case you’ve made over $600 in staking or interest, the exchange will send you a 1099-MISC form to the IRS simultaneously.
NFT Taxes
Coinbase announced its NFT marketplace to buy/sell/mint NFTs in 2021. And since then millions of users have been trading NFTs on the platform. Here’s how Coinbase taxes work on NFTs:
- Exchanging a crypto token for an NFT is looked at as a disposal event and based on the price fluctuations since you originally received it, you’ll incur capital gains or losses.
- Exchanging an NFT for a crypto token is also looked at as a disposal event. And similar to the scenario above, based on the price fluctuations since you originally received it, you’ll incur capital gains or losses.
Do You Have to Pay Taxes on Coinbase?
Paying Coinbase taxes depends on the outcome of your trade. For instance, you might not have to pay taxes if you incurred a capital loss or in other words lost all of your crypto investments. But, you still have to show all your crypto activity on your yearly tax returns. If you make a profit on your trades, you’ll need to pay taxes on the earnings.
Why Can’t Coinbase Always Generate My Tax Forms?
Coinbase diligently generates tax forms for its users, but that’s about it. Coinbase tax forms will only be generated on the Coinbase platform. A majority of crypto investors use more than one exchange or platform such as Binance or Kraken. In this case, the platform can’t provide complete information concerning gains, losses, and income tax.
Coinbase tax calculators won’t provide accurate numbers if:
- You purchased and disposed of crypto tokens on another exchange
- You sent or received crypto tokens from another exchange
- You stored/sent/received crypto tokens from a wallet
- You engaged in an ICO
- You used a calculation method other than FIFO to determine your gains/losses
Documents for Coinbase Taxes
Coinbase helps you accurately report your taxes. With the Coinbase Transaction History CSV file, you can review all your purchases, sales, transfers, and investment activities within your Coinbase account.
Does Coinbase Send a 1099-B Form?
As previously mentioned, Coinbase can only calculate taxes for transactions performed on the exchange. For this reason, Coinbase does not send Form 1099-B to its users containing cost basis information.
However, it might change in the future owing to the fact that the American Infrastructure Bill will ask major crypto exchanges to send Form 1099-B to both the IRS and its users. But, since the majority of crypto investors use more than one exchange, the information present on these forms will be incomplete. Ultimately, it’s up to the users to keep a thorough record of their transactions.
Or, you can use ZenLedger, which integrates with more than 400 crypto exchanges and can automatically do it for you. Hence, making tax reporting a breeze.
Coinbase and the 1099-K Form
Coinbase has sent Form 1099-K to its users in the past. But, it confused taxpayers as this form doesn’t show the cost basis from your transactions but only shows gross proceeds. This led to inaccurately showing that the users made large amounts of money on Coinbase. Since then, the exchange has stopped issuing Form 1099-K.
Note: Coinbase sends you Form 1099-MISC, but it is not a complete record of your transaction history. It shows your net income from staking and rewards.
Final Words
Coinbase makes it easy to buy, sell, and exchange cryptocurrency and calculating Coinbase taxes is also simple on the exchange. Coinbase tax forms add to the simplicity of filing your tax returns at the end of the financial year. To answer the question raised at the beginning of this guide, Coinbase does maintain simplicity while filing taxes.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.