Coinbase is one of the biggest names in cryptocurrency and Bitcoin trading. Coinbase works not only as a coin wallet, but also as a platform to buy and sell cryptocurrency like Bitcoin, Ethereum, and Litecoin. The IRS needs to know about any profits or income you make, including transactions from services like Coinbase. Because of this, you may need to report your Coinbase transactions to the IRS. The Roseville cryptocurrency tax lawyers at The NewPoint Law Group explain.
Are Cryptocurrency Transactions Taxable?
Cryptocurrency confuses many investors and those trading coins today; even the IRS is not sure exactly how to treat cryptocurrency. However, as it stands, the IRS has stated that it will enforce digital currency taxation like property. Despite the name “currency,” cryptocurrency is held and taxed much like stocks and bonds, or any other property you may buy as an investment. This means taxing it, in most situations, as a capital asset.
Capital assets are any pieces of property. Whether you can see it or not, a capital asset is anything of value that you can have and sell. When you buy an asset, you put some amount of money into it, known as the “cost basis.” When you sell it, you either make a loss or profit, depending on whether the sale price is higher or lower than your cost basis. Whether you make a profit or a loss, the IRS wants to know.
The profits and losses from selling capital assets are taxed under the “capital gains tax.” More specifically, profits are taxed, whereas losses may actually lead to tax deductions on other capital gains. Accounting for your losses and gains is important when investing in bonds and securities, as well as crypto coins.
Do Blockchain Coin Transaction Services Collect Taxes on Trades?
Most services like Coinbase are there to help make trading and storing your coins and cryptocurrency easier – but they are not tax professionals. Many companies do what they can to help you understand that you might need to pay taxes, but they do not usually pay your taxes for you.
Instead, it is up to you to calculate your gains and losses, prepare your tax return, and report to the IRS. In some cases, this calculation can be quite detailed. For many investors and traders, coins will not be your only assets that face capital gains taxes. Stocks, bonds, real estate, and other things may also lead to capital gains taxes, so it is important to look at your investment portfolio as a whole come tax time. Talk to a Bitcoin tax lawyer to make sure you are paying the right taxes.
How do I Calculate Taxes on Cryptocurrency?
First, it is important to understand that every person’s tax situation is different. These rules should not be taken as the final say on what tax you owe for Coinbase transactions or any other cryptocurrency sales or purchases. Instead, this information is merely here to help you understand the complexity of calculating taxes on crypto coin transactions. If you are in doubt about what you owe, contact a tax attorney for help.
The first thing you should do is always keep a record of your transactions. Companies like Coinbase have taken steps to help their customers and users with their taxes by providing 1099-K forms to some users. There is even work on a “reporting tool” to help users determine what they owe in taxes. However, keeping your own record is important
A 1099-K form is usually issued for any year where you receive certain transactions or make more than 200 transactions worth over $20,000. Coinbase provides users with a copy of a 1099-K if they meet these transaction thresholds. The goal of a 1099-K is to notify taxpayers of what their transactions were so that they can calculate their tax burden and comply with tax requirements. Just because you do not receive a 1099-K does not mean you do not need to report your coin transactions.
In many cases, you will pay taxes on the profits you received for coin transactions. The amount you pay to acquire the currency establishes your “cost basis” in the crypto coins. When you sell them, any money above the cost basis is profit, which the IRS wants you to pay taxes on. Even if you had less than 200 transactions or worked with less than $20,000, you may still need to pay taxes on your profits.
To determine your tax burden, you should find the total profits and losses from all coin transactions, as well as any other capital gains throughout the year. Then, apply the appropriate capital gains tax rate. This is usually 0%, 15%, or 20%, and depends on your tax bracket. This will tell you what you owe the IRS.
Roseville Cryptocurrency Transaction Tax Lawyers
If you invested Bitcoin, Ethereum, Litecoin, or other cryptocurrencies, it is important to talk to a tax attorney. Many of the transactions made on Coinbase and other cryptocurrency services result in taxable profits you must report to the IRS. Especially with the complexities and doubt surrounding cryptocurrency, it is important to discuss your coin transactions with a tax attorney and ensure you pay the proper taxes. To schedule a free consultation on your case, contact the Roseville tax lawyers at The NewPoint Law Group today at 1-800-358-0305.