Coinbase and the IRS: How Much Does Coinbase Report?

DIGITAL MONEY NEWS- Coinbase has been on the receiving end of criticism from a number of tax agencies, including the IRS, for not properly paying taxes on crypto transactions made by users of its platform. So, how much does Coinbase report to the IRS? And do they report everything? Let’s find out!

What Is a Cryptocurrency, And Why Would The IRS Care About My Bitcoin Gains?

The Internal Revenue Service (IRS) will want to know all about your cryptocurrency gains if you didn't report them last year. This is because, until this point, cryptocurrency wasn't legally classified as a currency. 

The law also said that if someone failed to report their cryptocurrency earnings or losses in 2017, they may owe penalties plus interest for any unreported income up to three years prior to filing. 

So what does it mean for your Bitcoin wallet? You'll have to pay taxes on any transactions over $20,000. And not just when you make the purchase, but anytime you sell your crypto, too. 

For example, say you bought bitcoin when it was worth $1,200 in 2016. You then decided to cash out at $4,000 in 2017 by selling it on an exchange like Coinbase. 

Your capital gain from that transaction would be calculated as ($4,000 - $1,200 =) $2,800. Now say you decide to trade your bitcoins again and purchase Ethereum with them at its price of $600 during the same year. 

Your capital gain would be calculated as ($600 -$1,200 =) -$600 because Ethereum has gone down since you purchased it.

Where Can I See My Crypto Transactions And Taxable Events?

As for your crypto transactions, you can view them in the Transactions tab of your account. Be warned, though - this only includes purchases. 

If you mined or received airdrops, or otherwise acquired cryptocurrencies on an exchange, you may need to search around elsewhere. 

If you used another platform like GDAX or Gemini to make trades while they were still a part of Coinbase, then these will also show up on your balance there. 

To find out how much you owe in taxes, it’s best to use a service like Bitcoin.Tax to help with reporting. 

The last thing is that you should always report your gains and losses when filing with the IRS (and other tax agencies). 

Keep detailed records of any exchanges made between assets so that it’s easier when filing taxes! Use services like Bitcoin.Tax to help with reporting. 

These tools not only automatically calculate taxable events, but they also provide a built-in asset converter as well as an API integration feature if you want to sync data from third party platforms.

Creating An Account With Coinbase

With Coinbase, you can buy and sell cryptocurrencies like Bitcoin, Ethereum, and Litecoin. First create an account with Coinbase by filling out a registration form. 

You’ll need to provide personal information such as your name, email address, date of birth, country of residence, phone number, occupation or income source (if self-employed), identification type & number for verification purposes and backup phone number in case we have any trouble getting in touch with you. 

When you're done, click 'Create Your Account.' Next, connect your bank account and/or credit card so that you can easily transfer funds into Coinbase. 

After you've set up two-factor authentication on your account, log in and click buy/sell at the top right corner of the screen. 

Click on BTC/USD if you want to purchase Bitcoin. On this page, enter how much money you want to spend or how many Bitcoins you want to buy using USD from your connected bank account or credit card.

Sending Cryptocurrency to Your Wallet

The easiest way to move your cryptocurrency off an exchange like Coinbase is to send it to a personal wallet. After confirming your deposit, click Buy/Sell on the navigation bar at the top of the screen. 

Click on Deposit. A window will pop up with your digital currency address (beginning with bitcoincash: or ethereum:). 

You'll then want to paste that address into your wallet's address field where you would normally send money. Confirm this by typing in the amount of coins you wish to transfer. 

Your new balance should show up within five minutes. Be sure to check back with your wallet periodically so you can see when deposits have arrived. 

If there are still funds on Coinbase for the currency you just transferred, log back in and go to Buy/Sell > Account Balances > Deposits & Withdrawals > Enter the name of the coin being sent from Coinbase > View Details. 

From here, you can see how much has been sent from Coinbase and how much remains available for withdrawal.

Buying Cryptocurrency On Coinbase

So let's say you buy $100 worth of Bitcoin. You need to report this purchase on your taxes as a long-term capital gain with zero exceptions. Your best bet is to just include it in a section labeled Other Income. 

If you sell that same Bitcoin for more than what you paid, the difference will be taxed as a short-term or long-term capital gain, depending on how long you owned it. 

If this seems like too much work, then consider investing in a Taxable Investment Account through your broker or financial advisor instead of through an exchange like Coinbase. 

That way you can deduct investment losses from taxable income, and any gains will also be taxed at a lower rate. 

The disadvantage is that this method might take longer for funds to transfer in and out of the account, so if you're looking to make quick trades, Coinbase may be a better option. 

Plus, without setting up automatic investments with scheduled deposits and withdrawals, you'll have to periodically go into your brokerage account yourself to put money in or withdraw it. 

The only exception is if you have qualified dividends which are reported separately from interest and other forms of earnings under the Securities Exchange Act of 1934. Then those should be included in Other Income on your 1040 form, not Capital Gains