How to Do Your Coinbase Taxes
Coinbase has grown to be one of the largest and most prominently used cryptocurrency exchanges in the world. Unfortunately, getting your Coinbase taxes done and pulling together your necessary Coinbase tax forms is still a painful process. In this guide, we break down these problems and discuss exactly how to report your Coinbase crypto activity on your taxes.
An Overview of Crypto Taxes
Cryptocurrencies like bitcoin are treated as property by the IRS. Other forms of property that you may be familiar with include stocks, bonds, and real-estate.
Just like these other forms of property, cryptocurrencies are subject to capital gains and losses rules, and they need to be reported on your taxes here in the U.S. (as well as other countries including the UK, Canada, and Australia).
Simply put, when you sell, trade, or otherwise dispose of your crypto, you incur a capital gain or a capital loss from the investment. These gains and losses get reported on IRS Form 8949 and included with your tax return.
Mitchell purchases 0.1 Bitcoin for $1000 in April of 2018 and sells it two months later for $2,000.
In this example, Mitchell has a $1,000 capital gain. He reports this gain on his tax return, and depending on what tax bracket Mitchell falls under, he pays a certain percentage of tax on the gain. Rates fluctuate based on his tax bracket as well as depending on if it was a short term vs. a long term gain.
If on the flip-side Mitchell incurred a loss instead of a gain, his crypto loss would actually reduce his taxable income and lower his total tax bill for the year.
For a complete walk through of how cryptocurrency taxes work, checkout our blog post: The Complete 2020 Guide to Crypto Taxes.
Do You Have To Pay Taxes On Coinbase?
In short, it depends.
You may not have to “pay” taxes if you only had capital losses (i.e. you lost money on all of your crypto investments); however, you definitely still have to report your crypto activity—even if you only had losses on your tax return for the year.
Sara buys 10 ETH for $1,000 on Coinbase. Two months later, she sells them for $800.
In this scenario, Sara will not “owe” money in the form of taxes as she incurred a capital loss; however, she is still required to report this loss on her tax return.
How To Report Coinbase Taxes
You report your crypto transactions from Coinbase just like you would if you were buying and selling stocks on a stock exchange.
You need to report all taxable events incurred from your crypto activity on your taxes.
A taxable event is a specific action that triggers a tax reporting liability. Whenever one of these 'taxable events' happens, you trigger a capital gain, capital loss, or income event that needs to be reported. It's as simple as that.
The following have been taken from the IRS guidance as to what is considered a taxable event within the world of crypto:
- Trading or selling crypto for fiat currency (like USD)
- Trading one crypto for another cryptocurrency
- Spending crypto to buy a good or service
- Earning crypto as income (job, service provided etc)
Christopher purchases 1 BTC for $5,000 from Coinbase in July. Two months later, he sells that 1 BTC for $7,000. Christopher recognizes a $2,000 capital gain on the sale/disposal of his 1 BTC.
Selling bitcoin for USD is a taxable event, and the $2,000 gain must be reported on Christopher’s tax return.
Meg purchases 20 XRP for $50 on Coinbase. A month later, she trades the 20 XRP for 0.05 ETH. At the time of the trade, the fair market value of 0.05 ETH is $70. Meg recognizes a $20 capital gain on this trade of her XRP. Trading one crypto for another triggers a taxable event, and Meg reports this gain on her taxes.
John purchases 1 ETH for $100 on Coinbase. A week later, he uses his 1 ETH to buy a new flatscreen TV. At the time of the purchase his 1 ETH has a fair market value of $120. John recognizes a $20 capital gain from disposing of his 1 ETH to buy his TV. This is a taxable event, and the associated gain gets reported on John’s tax return.
Reporting Gains and Losses on IRS Form 8949
Each taxable event, and each capital gain and loss from your crypto transactions, needs to be reported on IRS Form 8949 (pictured below). We walk through exactly how to fill out this form in our blog post here: How to Report Cryptocurrency On Taxes.
Coinbase Tax Documents
At this point you might be asking yourself, does Coinbase provide any tax documents to make this easier?
The short answer is yes, they do.
Coinbase provides qualifying users with 1099-K, 1099-MISC, and a transaction history CSV file for tax reporting.
Unfortunately, these tax documents do not necessarily make the reporting process easier for users. Oftentimes, they make it more confusing.
If you’d like to dive further into these documents, we analyze each one in our blog post here: Does Coinbase Report to the IRS?
How to Do Your Coinbase Taxes
This has been a lot of information so far. Now that you have a baseline understanding of how Coinbase operates from a tax reporting standpoint, let’s walk through a full example showcasing how you can do your coinbase taxes.
Step 1: Download Your Transaction History CSV File
The first step for reporting your capital gains and losses from your Coinbase trading activity is to pull together all of your historical transactions.
You can use cryptocurrency tax software like CryptoTrader.Tax to automatically pull in your transaction history for you, or you can download the “Transaction History” CSV file directly from your Coinbase account and do the calculations manually.
Learn how to download your Coinbase transaction history CSV file here.
Step 2: Calculate Your Gains and Losses
Once you have your records containing all of the transactions you made on Coinbase, you can start calculating the capital gain or loss from each taxable event (sell, trade, etc).
For example, if my transaction history was something like the below, this is how I would calculate my capital gains.
1/2/19 BUY 0.0849329 BTC @ $800
2/2/19 SELL 0.0849329 BTC @ $940
$940 - $800 = $140
For this single taxable event (selling 0.0849329 BTC), I recognize a $140 gain.
Step 3: Report Each Gain/ Loss on Form 8949
Once you’ve done all of the gains and losses calculations, you simply need to report each one on Form 8949.
Based on the example above, I’d include one entry for a $140 capital gain from the taxable event of selling my BTC.
Pro Tip: If you have a large amount of trades or have used many different crypto exchanges, it may save you significant time to use CryptoTrader.Tax to auto-fill your Form 8949 based on your transaction history.
Step 4: Report Any Crypto Income
If you have any mining or staking income or earned cryptocurrency through Coinbase Earn, make sure to report this separately from your capital gains/ losses.
You can learn more about mining/ staking income here.
Step 5: File Your Tax Return
Once all of your reporting is complete, you are ready to file your tax return.
Cryptocurrency Tax Software
If you have been using cryptocurrency exchanges other than Coinbase or if you have a large number of transactions, you can see how the tax reporting process for all of your transactions can become quite a headache.
CryptoTrader.Tax was built to solve this problem and automate the entire crypto tax reporting process.
Creating an account is completely free. You can connect your Coinbase account directly to the platform, as well as any other exchange you use, and import your historical buys, sells, and trades with the click of a button.
Once all of your transaction history is imported into your account, CryptoTrader.Tax will do all of the number crunching and auto-generate all of your necessary crypto tax forms for you (including Form 8949).
You can learn more about how CryptoTrader.Tax works here.
Coinbase Tax Reporting Demo
You can see the exact Coinbase tax reporting process demonstrated with CryptoTrader.Tax in the short video below.
Do you have any other questions about your Coinbase taxes? Our team has been doing this for a long time, and we would be happy to answer any of your questions! Reach us directly at email@example.com.
Disclaimer - This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.