![]() ![]() This article does not constitute financial advice but acts as a resource to learn more about crypto taxes.įor professional advice, readers are advised to contact a professional tax attorney, financial advisor, or a crypto tax specialist. Crypto users are left to fend for themselves, however, so keeping thorough records can help prevent any miscalculations from the IRS when it comes time to pay taxes. When buying assets like stocks and bonds, record-keeping is handled in part by the broker. In some cases, the IRS has been viewing sales of crypto and failing to account for the cost that the crypto was bought for (i.e., taxing someone for $30,000 profit for selling 1 BTC without realizing that the BTC was bought for $20,000, leaving only $10,000 in taxable profits). The IRS may miscalculate your liability as higher than it really is.You can write off capital losses of up to $3,000 on crypto trades.There is no longer a personal deduction for theft losses, so lost/stolen crypto is still taxable.If traders spent or sold crypto and the realized value (sale price) is higher than what they paid for it, they owe taxes on that profit.The IRS states that crypto is property, not a currency.Here are a few ground rules for tax and crypto in the U.S. This means the IRS is willing and able to investigate whether crypto traders owe money on taxes and audit and pursue those that haven’t paid. The IRS likely received the information on who to send these letters to from Coinbase. The IRS began sending out warning letters to traders from 2019 onwards, including letter 6173, 6174, and 6174-A notices and the more serious CP2000 notice. Getting Crypto Taxes Rightīy law, traders are required to pay taxes on any income earned as a U.S. Like a Form 1099-K, a copy of the Form 1099-MISC will be sent to the IRS. If a Coinbase user received $600 or more in cryptocurrency from Coinbase Earn, Staking, or USDC rewards in 2019, they would receive this form which details the amount of income they’ve received from Coinbase. Traders may also receive a Form 1099-MISC from Coinbase. The Coinbase tax resource page recently stated that Coinbase would no longer be sending out Form 1099-Ks. However, unfortunately, these forms do not report net gains and losses as a crypto trader, leaving traders with a lot of legwork for tax reporting. ![]() Form 1099-KĪ Form 1099-K is a tax form aimed at helping people to report self-income to the IRS.Ĭrypto exchanges sometimes send these forms out to cover their liabilities from a regulatory standpoint. However, other states have a much lower threshold, with the Washington D.C. In some states, these forms were sent to traders with orders equal to $20,000 or more. ![]() Since the 2018 tax year, Coinbase has sent Form 1099-Ks to traders with over 200 orders in a tax year. However, if a trader has filled out a Form 1099-K for Coinbase, it’s likely that the IRS also has their information. This also includes trading in smaller sums that amounted to $20,000 or more over the course of those three years. This includes buying, selling, sending, or receiving crypto through the exchange. If a trader handled $20,000 or more worth of cryptocurrency in 200 or more transactions on Coinbase between 20, the IRS likely received their information. There are two ways the IRS may have users’ trading data. The exchange informed each of these 13,000 users in February 2018, two years after the summons, that their data had been sent to the IRS. Transaction logs, including balance and wallet addressesĬoinbase eventually provided data on 13,000 users instead of the 500,000 initially requested.Internal Revenue Service ( IRS ).Ĭoinbase fought a summons in late 2016 when the IRS asked for data relating to over 500,000 users. Though all crypto investors must report their capital gains, Coinbase has become well-known for working closely with the U.S. The following guide examines the rules that Coinbase users should be aware of when it comes to tax season. Crypto investors are often unclear about their duties when it comes to filing taxes. ![]()
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