Coinbase Taxes Guide: How To Do Your Coinbase Tax Reporting in 2023

Crypto owners could trade openly without paying taxes for a long time. However, that all stopped recently when the Bank Secrecy Act came into play. 

So does that mean Coinbase users have to pay taxes on their earnings? The answer is yes; all Coinbase users have to make a tax report on all income gained from the platform. This might sound like a simple ordeal; however, it could be that you have no idea regarding Coinbase tax reports. If that is the case for you, then don’t worry; we’re here to guide you through the process. 

Why pay taxes on your Coinbase earnings?

You’re probably upset about this news if you’re only hearing about this now. The fact is, cryptocurrencies were never meant to be taxed in the first place. It was created for the sole purpose of trading privately without going through any public channels. This factor always kept crypto currencies a tax-free commodity. 

However, several governments worldwide have now categorized crypto earnings as taxable income. This was done in order to reduce the many illegal activities taking place within the privatized crypto channels. As we know, cryptocurrencies are often used by criminals for various unlawful activities. This may range from money laundering to paying for illegal and punishable crimes. 

Making cryptocurrency taxable allows the government to intercept and catch the individuals or parties involved in illegal activities. In fact, making crypto taxable has already impacted the functioning of several illegal operations. So, we could say that it was a good decision overall, despite the extra cost. 

How is cryptocurrency taxed?

Before we delve into the topic of Coinbase tax, let us understand how crypto taxes work in the first place. The simple act of owning virtual currency, such as crypto coins, does not make it taxable. This means that you don’t have to pay taxes on any crypto coins already in your possession. However, you will definitely be liable to pay taxes on any income made from the ‘trade’ of such assets. 

Any profit made from the buying or selling of cryptocurrency can be called capital gains. This is also valid if you have bought crypto coins using a different cryptocurrency. Either way, since you made a profit, it comes under taxable income. 

There are two ways your crypto earnings can be taxed; a capital gain or business income. We have provided a simple example to explain the difference between the two. 

Let’s assume that you purchased an asset only to sell it off in a few months. In performing this act of buying and selling, you have made a considerable profit. Since you made these transactions within the same year, it will be considered as business income for that year. This is called short-term capital gain and can be taxed as income for the year.

On the other hand, let’s say that you didn’t sell off this particular asset but rather held onto it. If the asset’s value is on the rise, that means you could make a bigger profit by selling it next year instead. In this case, the profit made from the recent purchase will be considered as business income for the year-end. Meanwhile, the value of the projected profit in the future will be taxed as a long-term capital gain. 

Any crypto asset sold after being held for more than a year is a long-term capital gain. In this case, you will be liable to pay around 15% to 20% in general tax rates. Meanwhile, you only have to pay your usual income tax rate for short-term capital gains. However, a separate tax will be charged for income above a certain threshold.

Similarly, if you are promoting your own Coinbase promo code to your network to earn a commission – perhaps after having read our Coinbase referral program review, you will also be committing a taxable event whenever you sell your earned crypto for fiat.

How to file Coinbase Taxes?

Now that we understand how crypto taxes work let’s dive into the process of filing taxes from your Coinbase earnings. Let’s start by saying that Coinbase taxes work differently for citizens of the US compared to other countries.

If you’re a US citizen, Coinbase is obligated to provide you with the 1099-misc form for the yearly tax report. This is valid for all the rewards and fees through Coinbase taxes, Coinbase pro taxes, and Coinbase Prime taxes. The form will be issued only if you have earned more than $600 in rewards or fees. That being said, Coinbase does not provide 1099-K and 1099 B forms to any user, irrespective of where they are from. 

To put it simply, if you are a citizen of the US, you can easily download your tax reports for the current year. All you have to do is head over to the document’s sections and download the tax report. Note that you will have to download your Coinbase pro-tax reports separately from the platform. 

If you are not a citizen of the US, then you will have to do everything on your own. This might seem like an excruciatingly annoying task, but it’s quite simple on the contrary. You have to download your entire transaction history and then import it into a compatible third-party Coinbase tax software. 

Simply click on your profile icon located in the top right corner of the screen to do this. Once the drop-down menu appears, click on reports. This will take you to the reports page, where you can see your transaction history. Once there, you will notice a blue box that says ‘Generate report’.

Clicking on this option will present you with two choices; download CVS report and download PDF report. 

If you’re planning to import the report into another software, choose CVS report. However, if you want an entire document of all your transactions, choose the pdf report instead. 

How to calculate Crypto Taxes on Coinbase?

When filing your Coinbase taxes, you have to calculate all your capital gains and losses yourself. This is done by calculating your gain/loss report for the particular year. The gain/loss report is a combination of all the transactions you have made that resulted in a profit or loss.

In general, your gains or losses are ascertained by subtracting the original price of a bought asset from the profit. Coinbase uses the ‘highest in, first-out method to calculate your cost basis. This is also called the HIFO method. This works on the belief that your highest costing assets are always sold first.

Note that Coinbase only calculates the transactions that you have made on the platform. It will not include transactions from platforms such as Coinbase Pro, meaning you have to make a separate report for it. US citizens can use the Coinbase taxes feature to extract their records.

Alternatively, you can easily download the transaction history as a CVS report and import it into tax calculator software. We have found Cointracker to be especially helpful in this scenario. 

You will first need to log into your Coinbase profile to do this. Once logged in, simply click on the profile icon on the top right corner of the screen. A drop-down menu will appear, giving you a list of options. Amongst these options, go ahead and click on reports. This will bring you to a new section where you can view your entire transaction history. 

On the right side of the screen, there will be a blue button that says ‘generate report‘. Simply click on it and choose the option to download a CVS report. Once you have the CSV file, you can easily import it onto any tax calculator software. Now just sit back and relax as the software calculates your taxes based on your report. Note that you will have to make a separate calculation for Coinbase pro taxes.

Coinbase Tax Reporting FAQ