With the growth of the crypto market over the years, regulations have been implemented on cryptocurrencies for crypto trading. As the government seeks to regulate crypto trading of crypto taxation has increased. So, here arises the question, does Coinbase report to IRS? The answer to it is yes and here in this article, you will gain an in-depth understanding of crypto taxation.

Taxation for Cryptocurrencies

According to the IRS, most cryptocurrencies are convertible virtual currencies. This means that they serve as an exchange, store of value, and unit of account. They can also be used as a substitute for real money, and any profits or income generated from your cryptocurrency are taxable. However, there’s a lot to understand about how cryptocurrencies are taxed because you may not owe taxes under certain circumstances. If you own or use cryptocurrencies, it’s important to understand when you’ll be taxed so you’re not caught off guard when Coinbase reports to IRS.

Cryptocurrency is taxed if it is sold or used in a transaction and it’s worth more than when you bought it. That’s because you’re recording a capital gain or loss on its market value. If you’re using your cryptocurrency as a business expense, it’s taxed as a business expense. If you’re mining a cryptocurrency or earning it for work you’ve done on the blockchain, you’re taxing it as ordinary income.

Cryptocurrencies are treated by the IRS as assets, which triggers tax events when they are used as a payment or when they are cashed out. When a gain is realized—i.e., when crypto is sold, exchanged, or used that has been appreciated—taxes must be paid on the gain. For instance, if you purchased 1 Bitcoin (1 BTC) at $6.00 and sold it three months later for $8.00, you would pay taxes on that $2.00 gain at your short-term capital gains tax rate. Selling assets for less than 12 months is taxable at your standard CGA rate. For 2024, that rate is between 0% to 37% based on your income.

For example, if the same trade occurred a year and a half after your crypto purchase, you would owe long-term gains taxes of 0%, 15%, or 20% based on your total taxable income for tax year 2024. Crypto taxes work similarly to other taxes on assets or property. When assets are used and profits are realized, they create taxable events for owners. This makes the events that generate the taxes the most important part of understanding crypto taxes.

An individual may face penalties, fines, or serious charges by the IRS if the person fails to make accurate reporting of transactions related to cryptocurrency. Hence, cryptocurrency investors and crypto traders need to keep accurate records and accurately report their transactions on their tax returns.

Does Coinbase Report to IRS?

Crypto taxation is subject be it as income, i.e. taxation is the federal tax on the profit earned by an individual either as a capital gain, i.e. federal taxation on profits earned by selling assets. The crypto exchanges or brokers, such as Coinbase are required to report the activities or transactions to the IRS through the use of specific forms and provide a copy to the individual, at the time when the IRS requests.

1099-MISC

An individual needs to report their crypto transaction under the heading of miscellaneous income using Form 1099-MISC if an individual has earned over $600 crypto or achieved crypto rewards. However, even if the crypto income or crypto rewards is below $600 then also you need to record the amount for filing your tax return.

1099-B

If you traded Futures through Coinbase Finance Markets, Coinbase will provide you with a Form 1099-B.

Coinbase and IRS Reporting

Taxation of crypto transactions on Coinbase is the same as any other transaction. While Coinbase does report crypto transactions to the does Coinbase report to IRS under certain circumstances, this does not mean that the individual taxpayer is exempt from reporting.

In case a person earns more than $600 in crypto rewards or $600 in staking from Coinbase in a certain tax year, you may be required to file a Form 1099-MISC with the Internal Revenue Service (IRS) as part of your Coinbase tax return. These forms do not include capital gains and losses.

Information that Coinbase reports to the IRS

Coinbase forwards a copy of every crypto tax return to the taxpayer and the Internal Revenue Service (IRS). So, if you received a Coinbase tax return, the IRS will also receive a copy of your Coinbase 1099 and will assume that you have reported your cryptocurrency income to the IRS.

A 1099 form is a tax form that provides information to the IRS about miscellaneous income that is not related to employment. For example, the IRS classifies transactions classified as miscellaneous income by the crypto tax guidance as: Staking rewards Airdrops Referral Rewards. These are examples of miscellaneous income reported to the IRS by Coinbase. When a 1099 is issued by Coinbase, it includes information about certain miscellaneous income that a user has earned on the Coinbase exchange, including Coinbase Pro (before the platform was shut down). Only if you have $600 or more of miscellaneous income (in January - December) in a financial year Coinbase will issue a 1099-K form for a 1099-MISC form

Gain/loss report

Crypto capital gains and losses aren’t reported on the Coinbase 1099, but that doesn’t mean you don’t have to report them. A Coinbase 1099 tells the IRS that you’re actively trading crypto and that you may have transactions outside of rewards or staking that need to be reported to the IRS. The Coinbase platform does have a profit/loss report, but it doesn’t report your gains and losses to the IRS.

·       Coinbase makes a computation of the capital gain or loss based on the proceeds an individual received and excluding the cost basis from it. The calculation of the capital gain or loss is made on the original or initial cost of the crypto.

·       In case the individual has held their crypto for more than 12 months before its disposal, the capital gain or loss can be considered long-term. The capital gain or loss is considered to be short-term when the crypto is held for less than 12 months.

·       The HIFO is the highest in, first out, and the LIFO is the last in, first out and the FIFO is the first in, first out. Each of these can affect your return, so it’s important to talk to a tax professional before picking a strategy. The customers of Coinbase can set up their cost basis method within their tax center settings.

·       The crypto transactions that you have made through the use of your Coinbase account are recorded in the capital gain/capital loss report. The transaction or crypto trading activities that are not been performed in other platforms or not included in Coinbase products like Coinbase Prime, Coinbase Wallet and Coinbase Pro.

·       If you sold cryptocurrency on Coinbase that you purchased elsewhere (e.g., a decentralized exchange), talk to your tax advisor or use a crypto tax calculator like CryptoTax Calculator or CoinTracker because Coinbase will not have your cost basis information.

Raw Transaction Report

There is no IRS-required raw transaction report available on Coinbase. However, an individual can view their raw transaction reports through Coinbase’s custom reports. There are a variety of gain/loss report options available on Coinbase, including Gain/Loss Reports.

 Upcoming Changes in Crypto Tax Reporting

Beginning in tax year 2025, Coinbase will need to report all of its gains and losses on a tax-deductible basis to the Internal Revenue Service (IRS) using Form 1099-DA.

Additional Forms and Resources by IRS

If you file your taxes on your own, you're probably familiar with these tax templates from the Internal Revenue Service (IRS). But if you're new to filing taxes on your own or just want to know more about them, here's a quick rundown.

Form 1040: This is also known as U.S. Individual Income Tax Return is used to calculate the total taxable income. 

Form 8949: Gains or losses are required to be reported to IRS in the form 8949. This worksheet is related to reporting the disposal, selling, and conversion of crypto.

Schedule 1: This form is also known as Additional Income and Adjustments to Income. This form is related to the recording of mining, staking, or other income reported in 1099-MISC.

1040 Schedule D: This form is a crucial part of their crypto tax filing that provides a summary of the capital gains or losses. It is also been referred to as Schedule D.

Moreover, crypto taxation is crucial for any crypto investor in this dynamic crypto environment. So, it is important to be aware of does Coinbase reports to IRS, the procedure involved in filing crypto tax returns in Coinbase, information that Coinbase reports to the IRS, and changing crypto regulations.

FAQs

1.      Can the IRS seize your Coinbase account?

Yes, the IRS can seize and monitor your cryptocurrency transactions through Coinbase or other wallet services. Here are the reasons: Coinbase is a licensed exchange and must adhere to AML and KYC regulations. Coinbase reports user transaction information to the Internal Revenue Service (IRS). This includes Form 1099 for gross payments over $20k and 200 transactions per calendar year.

2. Can the IRS see your crypto wallet?

Yes, Bitcoin and other cryptocurrencies are traceable. Bitcoin transactions are public records, meaning they can be accessed by anyone, including the IRS. Centralized exchanges provide the IRS with customer information, including wallet addresses and private information.

3. How does the IRS know if you have cryptocurrency?

All the cryptocurrency transactions are reported by crypto exchanges to the IRS. If you’re using an exchange that sends you a 1099K or 1099B, there’s no question that the IRS is aware that you have taxable cryptocurrency transactions.

4. Will the IRS know if I don't report crypto?

The Internal Revenue Service (IRS) is well aware of your crypto holdings. There are two types of crypto tax fraud: tax evasion and payment tax evasion. Tax evasion is when income is intentionally omitted or underreported. Crypto tax fraud and crypto tax evasion are against the law and are illegal.

5. Does Binance report to the IRS?

At the moment, Binance distributes 1099-MSI forms, which contain information about any income above $600 that Binance US investors have reported to the Internal Revenue Service (IRS). The IRS is in the process of creating a separate digital asset 1099 form, so the amount of information that Binance US distributes to the IRS could grow significantly in the future.