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.
In most tax jurisdictions, the following transactions are treated as taxable events:
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.
If you use your bitcoin to buy something like a pizza or web hosting, then you are likely to be liable for the exchange.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.