Over the past few years, the IRS has made it clear that they are making cryptocurrency tax enforcement a priority. Over the past 12 months, the tax collecting agency has 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?
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.
In short, it depends.
Coinbase sends a certain 1099 to both you (the account owner) and the IRS if you meet certain qualifying factors.
In years prior to 2021, Coinbase sent you a 1099-K tax form if:
If you met all three of these requirements prior to 2021, Coinbase sent 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.
NOTE - As of 2021, Coinbase is no longer issuing form 1099-K to customers.
You will receive Form 1099-MISC if you:
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.
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.
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).
To report your crypto taxes properly, you need to complete Form 8949. You can read our blog post detailing how to report crypto on taxes for a step-by-step walkthrough of this process.
Still confused? No problem. Our team here at CryptoTrader.Tax has been working with crypto taxes for a long time. We are happy to answer any of your tax related questions. Just send us a chat through the live chat widget on our homepage.
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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.