We already know that cryptocurrency exchange Coinbase really wants its users to pay taxes on their holdings. Now it’s unveiled a new tool to more easily calculate how much money you owe Uncle Sam for all those profitable bitcoin trades.
The government is profoundly hip to cryptocurrency, taking steps to implement and regulate its use for formal purposes like paying tax. It’s also paying deadly attention to people who might be hiding their wealth in crypto assets, which is why the IRS ordered Coinbase to hand over information on nearly 15,000 users it identified as moving more than $20,000 through crypto; it ended up going to court late last year.
This week, a new post on Coinbase’s Medium blog announced the arrival of an IRS-friendly tool for crypto traders to help calculate how much tax they owe on their capital gains. Importantly, this is not a one-and-done super-tool that perfectly tabulates gains and losses across exchanges. This is a Coinbase-centric tool that generates a report of all trading activity associated with your Coinbase account, then uses a first-in, first-out (FIFO) accounting method to calculate the profits you owe tax on.
But if you want similar above-board compliance from other exchanges, you’ll need to visit them individually and try your luck obtaining the requisite reports.
There is debate over how virtual currencies should be taxed. The IRS made its viewpoint clear in 2014: cryptocurrency is taxed like property, not currency. However, crypto payments to contractors must be reflected on a 1099; wages paid to an employee are taxable and cryptocurrency holdings are subject to capital gains tax. So it still gets a lot of currency treatment.
Thankfully, Coinbase “[understands] taxes for digital currency can be complicated,” so they “updated [their] tax tools to make reporting easier.”
Perhaps the next step is to pay one’s cryptocurrency taxes in cryptocurrency.