Does Coinbase report to the IRS?

This is a frequently asked question, the answer of that IRS has stated that bitcoin tax enforcement is a top priority. You will be subject to taxation on any profits generated from cryptocurrency trading, as Coinbase discloses the transactions of its US clients to the IRS. We'll go over the fundamentals of Coinbase's crypto tax reporting and the various forms the company sends out to customers, along with an explanation of what each one means for you.

When Crypto is taxed?

You are not required to pay tax for owning a cryptocurrency. IRS taxation treats cryptocurrencies like property. You pay taxes on your cryptocurrency if it is sold or used in a transaction. You will be taxed if you receive cryptocurrency as payment for your business. Taxes are imposed on ordinary income if you mine cryptocurrency successfully or receive it as a reward for work performed on a blockchain. The IRS views cryptocurrencies as assets, so they are taxed when used for payment or cashed out. You owe tax on a gain you make when you sell, exchange or use cryptocurrency that has appreciated in value.

What to Do with Your Coinbase Crypto Tax Documents

One of the most important Coinbase crypto tax document is Form 1099. If crypto income exceeds the $600 threshold, they forward the Form to both the customer and the IRS. This crypto tax document assists the IRS in calculating the correct tax liability and verifying the taxpayer's reported income. Assessing the veracity of the tax liability of a Coinbase user has been accomplished using the 1099 forms that Coinbase submits to the IRS.

1099 forms & Its Types:

1099 forms are specifically created to assist the IRS with details on specific kinds of income that originate from sources related to non-employment. There exist other variations of 1099 forms, but this post relate to three significant ones mention below:

Form 1099-B: This is utilized to release information on property or security disposals conducted via a broker. If you have already involved in stock exchanges such as Robinhood & E-Trade, you would already be aware with this particular criteria. Currently, Coinbase does not issue customer with 1099-B forms. Even so, it is quite possible that this will be subject to alteration in the immediate future. Beginning in 2024, cryptocurrency "brokers" have to submit 1099-B forms to consumers and the IRS in accordance with the American infrastructure bill of 2021.

Form 1099-K: This is frequently utilized by credit/debit card networks & other payment settlement networks to demonstrate to the IRS the total number of payments that have been handled. If you are a Coinbase Pro user and have accomplished 200 or more trades with a total value of $20,000 or more, Coinbase will provide you with 1099-K tax form.

Form 1099-MISC: This form is utilized to disclose “miscellaneous” income to the IRS, including incentives received from referral or staking. If you are a customer of Coinbase and are liable for US taxes, you will be issued 1099-MISC Form.

Failure to document the taxable cryptocurrency transaction will lead to an IRS audit, perhaps resulting in criminal charges or being liable for interest and penalties. It might be perceived as fraudulent or as an act of tax avoidance.

Additionally, you may also want to consider seeking advice from a crypto Tax consultant. They possess the ability to elucidate IRS documentation, tax returns, and tax implications derived from your cryptocurrency transactions.