Lawrence Zlatkin, Vice President, Tax, Coinbase, notes that for the second consecutive year, taxpayers will be asked on their tax return forms questions regarding digital currencies. The US Internal Revenue Service (IRS) is “increasingly interested in knowing whether or not taxpayers are trading virtual currencies” like Bitcoin or Ethereum (and many others), Zlatkin confirmed.
“We’re still in the early stages of defining the crypto tax reporting process with the IRS, and here is how we’re approaching crypto taxes in service to our customers.”
The IRS started advising American taxpayers about cryptocurrencies back in 2014 and has been working consistently on how to properly define the nascent asset class they refer to as “virtual currency.”
Zlaktin explained that they want to offer more clarity to taxpayers, while leaving themselves “room to make adjustments” in response to a fast-evolving crypto and blockchain sector. Among the agency’s concerns is whether taxpayers are accurately reporting their capital gains and losses from dealing in digital currencies. This has led to many questions about the tax filing process for crypto-assets, Zlaktin noted.
He pointed out that the 2019 tax year was the first year during which the IRS included a question regarding digital currencies on IRS Form 1040 (the individual tax return form). He confirmed that you’ll find a question regarding virtual currencies in 2020 just below your name and address fields.
“At Coinbase, we’re committed to addressing these requirements. Like all aspects of our business, our goal is to offer crypto tax resources in the most secure and compliant way possible. Our overall approach to taxes is two-fold. The first is educating our customers on what they need to know about reporting taxes and crypto through our robust educational materials and tax guides. Second, we want to offer the right tools and services to help our customers meet their tax obligations.”
Coinbase and other blockchain industry participants continue to build (from scratch) the “next generation” tax reporting products which may be used for reliably reporting income from cryptocurrency transactions, Zlaktin noted.
“We are just getting started, but we aim to ensure that our tax management tools are as trusted and simple to use as our trading platform. We are committed to delivering on our promise of being the best place to get started on your crypto journey.”
Coinbase is now recommending that their clients use CoinTracker (or another similar data service) to figure out their capital gains and losses from crypto transactions so these amounts may be accurately reported on their tax return forms.
CoinTracker is a free-to-use tool when calculating “less than 25 transactions,” the Coinbase team noted. They also mentioned that it can input these amounts into tax products, such as TurboTax, in order to be “factored into reporting tax obligations for the year.”
Coinbase clients are able to take advantage of a special discount on TurboTax Premier through the exchange’s Taxes and Reports page.
“Our goal ultimately is to provide more integrated tools and services in the future, in addition to what is available today, to make the tax return filing process as easy as possible. We are also required by law to report certain income earned by our customers to the IRS. For 2020, we are required to report fee and reward income earned through Coinbase on IRS Form 1099-MISC.”
Coinbase remains focused on supporting the “cryptoeconomy” and empowering its clients to make smart and more informed decisions regarding how they choose to engage with digital currencies.
“We recognize that greater clarity on tax reporting is critical in bringing new crypto users into the ecosystem. By providing more simple and easy to use tools on tax reporting, we’ll empower more people to actively participate in the cryptoeconomy.”