How to Calculate Coinbase Taxes

bitcoin loan accounts

As the old saying goes, two things in life are inevitable: death and taxes.

We can’t help you with the first one, but if you’re ready to face the second then this article will help you calculate your crypto taxes on Coinbase.

What is a taxable event in crypto?

In most tax jurisdictions, the following transactions are treated as taxable events:

1. Selling your crypto for cash

Any realized gains resulting from exchanging crypto assets into fiat will be taxable. This also means that any losses, if recorded properly, may be deductible from your bill.

2. Using crypto to pay for goods and services

If you use your bitcoin to buy something like a pizza or web hosting, then you are likely to be liable for the exchange.

3. Selling one crypto for a different crypto

In some countries, exchanging crypto for crypto is not taxable whereas in many it is. When you convert bitcoin into ethereum, or vice versa, it will be treated as disposition of the asset.

4. Getting paid in crypto by your employer

If you get paid in bitcoin by your employee then its a high chance that your crypto will be classified as compensation and you will have to pay tax on it in accordance with your income tax bracket.

5. Mining and staking crypto, or receiving airdrops

The crypto you receive directly from mining, staking or through airdrops is liable for taxation.

There’s a lot to keep track of and as the number of people interested in cryptocurrencies has increased so has the number of crypto tax software companies. Here’s a quick comparison of the the most popular software out there:

  • TAX SOFTWARE
  • CryptoTrader.Tax
    • Easy import from nearly any crypto exchange
    • Can be uploaded to TurboTax
    • Support for many exchanges
  • Koinly
    • Very clean interface makes it easy to use
    • Supports over 300 exchanges
    • Can export US and Canadian tax forms
  • Accointing
    • Easily print tax reports at any time
    • Connect 4500 coins form all exchanges and wallets
    • Supports USA, UK, Austria, Germany, and Switzerland

How to choose which tax software is good for you?

Starting Small

Choosing the right tax software can be almost as overwhelming as filing your actual taxes. Your choice will depend on how many trades you are making in a year and whether your crypto activity is limited to one exchange like Coinbase, or whether it’s spread across other activities like mining and airdrops.

If you’re a casual trader who has only made a few transactions then you will be absolutely fine with the free version of a service such as Koinly.

Koinly's Home Page

If you have several thousand transactions across several exchanges then you should consider the paid versions of sites like cryptotrader or cointracker.io. These websites can synchronise your trades from multiple platforms and present them in easy to read dashboards and exportable forms.

CryptoTraders's Home Page

If you’ve gone beyond simply just trading crypto and have multiple income streams from things like mining and staking then it would be wise to get professional advice from a certified account who has a deep understanding of crypto assets.

Which Tax Documents Does Coinbase Give You?

With a few clicks of a button, Coinbase customers can generate reports for all of their buys and sells, as well as records for any crypto they sent or received from their Coinbase accounts.

If you are subject to US taxes and have earned more than $600 on your Coinbase account during the last tax year, Coinbase will send you the IRS Form 1099-MISC.

What a 1099 from Coinbase looks like.

If you are a non-US Coinbase customer you will not be sent any tax forms by Coinbase, but you can still generate reports on the platform and then use these for your crypto tax software or to help your financial advisor.

Coinbase's Report Dashboard

The reports only list transactions in, to and from your Coinbase account. If you have moved your crypto from another wallet or exchange onto Coinbase, then the reports you can generate there will not include those previous transactions. Use a service like cryptotrader.tax which can handle multiple trading platforms.

How to Calculate Coinbase Cost Basis

To accurately submit your tax filings you need to know the cost basis of each of your transactions. In layman’s terms, this simply means what was the amount of dollars you originally spent to buy your bitcoin, and what was the dollar value when you sold it.

Tax Returns

This cost basis is used to calculate your gains and your losses. The reports you can generate on Coinbase calculate the cost basis for you, inclusive of any Coinbase fees you paid for each transaction.

Coinbase uses a FIFO (first in, first out) method for your Cost Basis tax report. They will give you a summary of all your crypto purchases and sales along with the cost basis and capital gains.

An Example of FIFO Cost Basis Calculation. Full video here

Sending and receiving crypto into your Coinbase wallet is treated as buying or selling that asset at market price so it’s important that you keep your own accurate records as well. If you sent bitcoin to your Ledger X, or other hardware wallet, and then sent it back to Coinbase at a later date you would not want to file this as a sale of bitcoin.

Tax Calculation

What About Coinbase Pro Tax Documents?

United States

If you are a Coinbase Pro customer and you meet their thresholds of more than 200 transactions and $20,000 in gross proceeds then you will receive the IRS Form 1099-K instead of the 1099-Misc.

If you are in the following states, then your threshold for receiving a 1099-K is much lower:

Arkansas (AR): $2,500

District of Columbia (DC): $600

Massachusetts (MA): $600

Mississippi (MS): $600

New Jersey (NJ): $1,000

Vermont (VT): $600

If Coinbase is required to send you a Form 1099-K, you will get an email from them during tax season with a link to access your form.

Can You Import Coinbase to TurboTax

The short answer is yes. You can import your Coinbase transactions into TurboTax with the help of cointracker or cryptotrader.

Cryptotrader integrates with turbotax

You need to download your transaction history from the Coinbase website and use them to upload into TurboTax.

There are some limitations though. You can only upload a maximum of 1000 transactions into Turbo Tax and the gains loss calculator will not include any transactions that were on Coinbase Pro.

Conclusion

Taxes can be taxing. If you’re making that many trades then you might want to consider a tax advisor to help you. Even if you are not at that level yet, it’s still important to take these things seriously and the more you can learn about this topic, the more prepared you will be by the time we get around to the next tax season.