For the second year in a row, you will be asked on your tax return about virtual currencies. The IRS is increasingly interested in knowing whether or not taxpayers are trading virtual currencies such as bitcoin or other cryptocurrencies. 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 began advising taxpayers about cryptocurrencies as early as 2014 and has been working through how to define the asset class they call “virtual currency.” They want to provide clarity to taxpayers, while also leaving themselves room to make adjustments in response to a rapidly evolving industry. Among their concerns is whether taxpayers are reporting their gains and losses from selling or trading in cryptocurrencies. Naturally, this has led to a lot of questions around the tax filing process for crypto.
The 2019 tax year was the first year in which the IRS included a question about virtual currencies on IRS Form 1040, the individual tax return form. You will find a question about virtual currency in 2020 just below your name and address.
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, along with our industry peers, are working to build, from the ground up, the next generation tax reporting products and services for reporting income from crypto.
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.
We are recommending our customers use CoinTracker, or a similar data service, to calculate their gains and losses so these amounts can be reported on their tax returns. CoinTracker is free when calculating less than 25 transactions. It can also input these amounts into tax products, like TurboTax®, to be factored into reporting tax obligations for the year. Coinbase customers are eligible to receive a discount on TurboTax Premier via our 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 is committed to growing the cryptoeconomy and empowering consumers to make smart and educated decisions about how they engage with cryptocurrencies. 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.
This article originally appeared on the Coinbase Blog.
This article was written by: Lawrence Zlatkin, Vice President, Tax at Coinbase.
Original Article Link: Here