Does Coinbase Report to the IRS?
In 2019, the IRS made it clear that they are making cryptocurrency tax enforcement a priority. The tax collecting agency sent out over 10,000 warning and action letters to early Coinbase customers who may or may not have been accurately filing their crypto gains and losses on their taxes. These actions from regulators have many U.S. individuals wondering how the IRS is aware of their cryptocurrency transactions and ultimately asking the question: Does Coinbase report to the IRS?
The Tax Implications of Cryptocurrency
As we have discussed in great detail in our Complete Guide to Cryptocurrency Taxes, cryptocurrency is treated as property for tax purposes. This means that capital gains and losses reporting rules apply to cryptocurrency similar to how they apply to stocks (another form of property).
For example, if you bought 0.1 BTC for $1,000 and then sold it two months later for $2,000, you have a $1,000 capital gain. This gain is a form of income. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies for all cryptocurrencies.
Does Coinbase Report to the IRS?
In short, it depends.
Coinbase sends a certain 1099 to both you (the account owner) and the IRS if you meet certain qualifying factors.
As detailed on their tax resource page, you will be eligible to receive a 1099-K if:
- You are a Coinbase Pro or Coinbase Prime customer
- You executed 200 trades or more, whose total value is equal to or greater than $20,000* (OR met your state’s 1099-K reporting thresholds)
- You are subject to US taxes
If you meet all three of these requirements, Coinbase will send you AND the IRS a copy of 1099-K.
NOTE - 1099-K reports your gross transaction proceeds from Coinbase. It does NOT report your gains and losses. 1099-K is not the document you use for reporting your crypto taxes. Learn everything you need to know about your 1099-K from Coinbase here.
You will receive Form 1099-MISC if you:
- Are a Coinbase.com customer
- Received $600 or more in cryptocurrency from Coinbase Earn, USDC Rewards, and/or Staking in 2019
- Are subject to US taxes
If you meet each of these three criteria, both you and the IRS will be sent a copy of your 1099-MISC.
1099-MISC details the amount of income you have earned from Coinbase. This income needs to be reported on your taxes.
What’s the purpose of these 1099s anyway?
1099 information reporting has been around for a long time, and it doesn’t come as a surprise that more and more cryptocurrency exchanges are starting to incorporate 1099 information reporting. There are exactly 20 different types of 1099’s in existence today (1099-K, 1099-MISC, 1099-B, 1099-DIV, etc.). Each of them serve the same general purpose: to provide information to the Internal Revenue Service (IRS) about certain types of income from non-employment-related sources.
Put another way, 1099’s are sent out to report on the income that you received that wasn’t from an employer.
In the U.S., income is taxable. Sadly, there’s no way around this…
The income that you earn from cryptocurrency investing is no different, and these 1099’s give both you and the IRS records of this income. If the IRS receives a 1099 detailing income that you did not report on your taxes, it’s automatically flagged.
But you said that 1099-K is useless for tax reporting, right?
And don’t worry, we’re as frustrated as you.
1099-K is an extremely misleading form that cryptocurrency exchanges are sending out to cover their bases from a regulatory and liability standpoint. The unfortunate thing is that 1099-K provides no information on your gains and losses (which is what actually needs to be reported from a taxpayer perspective).
Still confused? No problem. Our team here at CryptoTrader.Tax has been doing this whole crypto tax thing for a long time. Too long… We are happy to answer any of your cryptocurrency tax related questions! Just send us a chat on our live chat widget in the bottom right corner.
Cryptocurrency Tax Software
Sign up for an account for free, import all of your historical trades and transactions, and generate your filled out tax forms like 8949 with the click of a button. The whole process will take you about 15 minutes. Learn how it works right here.
Yes, Coinbase does report your crypto activity to the IRS if you meet certain criteria. It’s very important to note that even if you do not receive a 1099, you are still required to report all of your cryptocurrency income on your taxes. Not doing so would be considered tax fraud in the eyes of the IRS.
If there are any questions that our team can help answer, don’t hesitate to reach out!
This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own crypto tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.