Coinbase, the largest cryptocurrency exchange operator in the US, is offering its users a tool set to report and file gains on their digital currency transactions in compliance with the Internal Revenue Service (IRS) guidelines on tax reporting.
However, Coinbase was quick to issue a disclaimer, saying its blog post “does not constitute legal or tax advice” and recommending that its users consult with a tax professional on such matters.
Computing cost basis/taxes
Coinbase customers are advised to provide a complete view of all their cryptocurrency transactions by generating a single report that details the buys, sells, receives, and sends of all currencies in their account.
The report will provide an account of any gains or losses from digital currency trades and will also be used to compute the cost basis for purchases and profits from all transactions, inclusive of fees. Customers are reminded that the report only covers their Coinbase account. For a complete view of their cryptocurrency investments, traders must download similar reports from the other exchanges they use.
Once the cost basis is determined, customers can consult with a tax professional to calculate any gains or losses and determine their taxable income. To put it simply, you will arrive at any profits or losses by subtracting your cost basis from the proceeds for each trade.
After computing any revenues or losses on your cryptocurrency investments, you can file your taxes, Coinbase said.
“For our customers who have only bought or sold digital assets on Coinbase, we offer a tool that automatically calculates your gains or losses based on a first-in-first-out (FIFO) accounting method. Note that FIFO is only one of several methods you can use to calculate your investment performance.”
The company reminded its customers that the accuracy of the report is limited to transactions done using Coinbase platform.
Coinbase tax forms
The online tax report is an improvement on the tax forms Coinbase sent to its customers late in January this year.
The exchange mailed out 1099-K tax forms to some of its clients, particularly those who received over $20,000 in cash from digital currency trades last year and those who have more than 200 receipt transactions from Coinbase.