Like many other crypto investors do you also wonder whether Coinbase reports to the IRS? This question is now more important than ever because the IRS is making crypto tax enforcement its top priority. In the past couple of years, the tax collection agency has sent more than 10,000 warning letters to Coinbase users.
So, does Coinbase report to IRS? Let’s find out in this article.
Table of Contents
Does Coinbase Send Trading Reports to the IRS?
The short answer is yes. Coinbase reports the crypto transactions of its users to the IRS before the tax filing season starts. If you are a Coinbase user and you’ve earned more than $600 and you pay US taxes, you’ll receive a 1099 form. Coinbase started submitting Form 1099 to the IRS and to its users in 2017.
Does Coinbase Send 1099 Forms to Investors?
Yes, Coinbase sends Form 1099-MISC to the IRS for rewards or fees via Coinbase Pro and Coinbase.com. For every US-based crypto trader that makes over $600 in a financial year, Coinbase will send one of the Form 1099-MISC to the trader and one copy to the IRS.
What Does the IRS Do With Tax Documents?
In the past few years, the IRS has been more vigilant about crypto tax enforcement and tax audits. They are sending letters such as 6173, 6174, and 6174-A or even CP2000 notices to taxpayers. The data collected from previous years’ 1099-MISC and 1099-K help the IRS to find filers who may be under-reporting or failing to report their taxes.
What Should I do If I Receive a 1099-MISC From Coinbase?
If you receive this form, the first thing you should remember is that it doesn’t show an individual transaction from staking or your rewards, just the total income you received from staking. When you receive this form, you have to report the details along with crypto losses, gains, or ordinary income from other exchanges as well. This helps calculate your crypto taxes.
Why Did Coinbase Switch From Form 1099-K to Form 1099-MISC?
Coinbase used to send Form 1099-K before 2021, but the issue with this form is that it only calculates the aggregate amount of crypto transactions instead of net profit or losses. Ultimately, it represented a loss as revenue was generated.
This created a lot of confusion at the IRS as sometimes the agents would interpret 1099-K calculations as profits instead of transaction volumes. This led to the IRS sending CP2000 letters to taxpayers for underreporting on their tax filings. These misunderstandings are usually addressed and resolved with the help of a crypto CPA, but it was burdensome for users to hire a CPA and go through the entire process each year. Therefore, Coinbase switched from Form 1099-K to Form 1099-MISC.
Accessing Your Coinbase Tax Documents
Even though Coinbase doesn’t send a 1099-MISC, you still have to report your income, capital/gains or losses you’ve made on the exchange. Several crypto tax software such as ZenLedger sync to Coinbase and automatically import your transaction history.
However, if you want to download the history of your transactions manually for record-keeping, you can go to the “Taxes” section of your Coinbase account. Here, you can view and download all the raw transaction history in CSV format. This page also shows if the exchange has issued any forms related to you to the IRS.
Does Coinbase Report To The IRS? – Conclusion
As an exchange that is operational in the US, Coinbase has to report to the IRS. If you are a Coinbase user and you’ve earned $600 or more on the exchange, you’ll receive Form 1099-MISC from the exchange and a copy of this form will be sent to the IRS as well. Later, you have to report your cryptocurrency taxes.
FAQs
- What happens if I don’t report my crypto to the IRS?
If you don’t report your crypto taxes, you could face an IRS audit. After that, you might have to pay interest and penalties, or you might even face criminal charges depending on the severity of the situation. If you’ve not paid your crypto taxes on time, you might receive a letter from the IRS.
- How do I avoid crypto tax?
Avoiding crypto taxes deliberately is a criminal offense and it could lead to penalties, interests, and criminal charges. Thus, avoiding taxes could lead to an audit because the IRS knows about your crypto transactions. However, if you gift crypto to someone, it is not a taxable event and receiving them as a hard fork also exempts you from paying taxes.
- Can the IRS find out about cryptocurrency?
Yes, the IRS can find out about your crypto transactions. Several crypto exchanges report your transactions to the IRS. If you use an exchange it provides you with 1099 forms, and the IRS knows about your transactions.
