How To Do Your Coinbase Pro Taxes
Coinbase Pro, formerly known as GDAX, is one of the most popular cryptocurrency exchanges amongst more advanced and professional traders. Unfortunately due to the transferable nature of crypto, doing your Coinbase Pro taxes can be challenging, and Coinbase itself isn’t actually able to give you necessary capital gains and losses information.
In this guide, we’ll discuss exactly how you can get your tax reporting done when using Coinbase Pro.
How do cryptocurrency taxes work?
Simply possessing cryptocurrencies like bitcoin does not subject you to tax liabilities. Rather, it’s the income that you generate from investing in them that is a form of taxable income.
The IRS treats crypto as a form of property. Like other forms of property, you incur capital gains and capital losses when you sell, trade, or dispose of your cryptocurrencies. These gains and losses need to be reported on your taxes.
John purchases 2 BTC from Coinbase for $14,000 and sends them to his Coinbase Pro wallet for trading. A month later, John trades 1 BTC for 20 ETH which at the time were worth $8,000.
In this example, John disposed of his BTC when he traded it for ETH, and therefore needs to calculate his capital gain or loss on the transaction.
John’s cost basis in 1 BTC is $7,000 (14,000 / 2).
John traded his BTC for 20 ETH with a fair market value of $8,000.
John recognizes a $1,000 (8,000 - 7,000) capital gain from this transaction which gets reported on IRS Form 8949.
On the flip side, if John had sold or disposed of his cryptocurrency for less than he acquired it for, he would write off that capital loss on his taxes.
For a complete deep-dive on everything you need to know about cryptocurrency taxes, checkout our Complete Cryptocurrency Tax Guide.
Coinbase Pro Taxes - Breaking Down The Problem
Coinbase Pro actually can’t provide users with necessary tax reports commonly received in the world of trading stocks for a number of reasons.
The first issue is that many trades on Coinbase Pro are quoted in other cryptocurrencies. Because you need to be calculating the fair market value in your local FIAT currency at the time of your trades, this becomes very problematic, and Coinbase Pro does not track original cost basis/ fair market value data across trades.
The second problem (and the much larger one), is a result of the core nature of cryptocurrency. Because you are able to send crypto into and out of the Coinbase Pro network—i.e. sending bitcoin from an outside wallet into my Coinbase Pro wallet—Coinbase Pro has no way of knowing at what cost (cost basis) you acquired that crypto for. Cost basis is essential data you need in the calculation of your crypto taxes.
We discussed this problem in much more depth in our blog post, The Cryptocurrency Tax Problem.
Essentially, if you have any cryptocurrency activity outside of Coinbase Pro, the exchange will be unable to give you reports detailing your gains and/or losses. They explain this themselves on their website.
So Coinbase Pro Can’t Give Me Tax Reports?
It’s true that Coinbase Pro cannot send you capital gains and losses forms. If you meet certain thresholds, Coinbase Pro will send you what is known as a 1099-K, but this document does not contain information about your gains and losses and is useless from a tax reporting perspective.
We breakdown how the Coinbase 1099-K’s work here.
If Coinbase Pro Can’t Give Me Tax Forms, How Do I Get Them?
To build out your necessary crypto tax forms, you need to account for all of your cryptocurrency transactions—even ones that occurred outside of Coinbase Pro.
To do this, pull together all of your historical cryptocurrency data that makes up your buys, sells, trades, air drops, forks, mined coins, exchanges, and swaps across all exchanges and platforms that you use.
You can do this by exporting each of your trading history files from your exchanges.
Use these trade history files to do the capital gains and losses calculations for each of your trades by hand. Each capital gain or loss tax event should be recorded on Form 8949 and your net gain should be transferred onto 1040 schedule D. We walk through the manual reporting process in our article here: how to report cryptocurrency on taxes.
Cryptocurrency Tax Software
If you don’t want to do your tax calculations by hand, you can simply import your trading history from all of your cryptocurrency exchanges directly into crypto tax software like CryptoTrader.Tax.
CryptoTrader.Tax integrates directly with Coinbase Pro and all other cryptocurrency exchanges. This allows you to import your trading history in a matter of seconds.
Once you’ve imported all of your crypto trades into your CryptoTrader.Tax account, you can generate your capital gains and losses tax reports, including IRS Form 8949, with the click of a button.
Cryptocurrency exchanges like Coinbase Pro can't provide their users with capital gains and losses reports, which are needed for tax reporting purposes. You can do your tax calculations by hand by downloading the trade history files from all of your exchanges, or you can automate the entire process by using CryptoTrader.Tax.
Getting started with CryptoTrader.Tax is completely free. You can even generate a free preview of your completed tax reports to see your total gains/losses for the year. Learn more about how it works here.