The cryptocurrency exchange Coinbase has released a comprehensive guide on reporting and paying cryptocurrency taxes.
Amid high regulatory uncertainty weighing on the crypto industry worldwide, Coinbase has tried to make things easier. It has developed a comprehensible guide describing in easy steps how to report and pay your crypto and Bitcoin taxes. It should be noted that this guide is intended for US investors only.
Coinbase Strives For Better Compliance
Coinbase, one of the world’s leading and oldest cryptocurrency exchanges, has come up with an initiative aimed to bolster clarity and compliance in the crypto industry.
It reminded its clients that digital assets are not just a cutting-edge tech innovation, but also a part of the traditional financial system. Thus, it is very important for every crypto market participant to educate themselves on tax obligations. No matter what an exchange reports to tax authorities, it is also the personal responsibility of every customer.
On the other hand, Coinbase acknowledges that currently there is a lot of conflicting information on the subject. To help its clients better understand these obligations, the exchange introduced a step-by-step guide. It specifies the cases when an investor may need to pay crypto taxes, helps to determine the right amount, and offers necessary forms for different taxation cases.
The exchange also gives references to the relevant data provided by the US Internal Revenue Service (IRS) and even explains a lot of technical terms. However, Coinbase adds that taxation laws are different in each county, so this guide only covers US investors.
To Tax Or Not To Tax?
The IRS classifies cryptocurrencies as property, not money. Thus, buying and selling them is taxable just like collectible coins or vintage cars. Moreover, as the guide states, ‘all crypto sells, conversions, payments, donations, and earned income are reportable by US taxpayers.’ The US investors who did not report income could face penalties and interest on unpaid taxes.
To avoid such risks, it’s better to evaluate your transactions. The IRS considers the following as taxable crypto events:
- Selling crypto for cash (i.e. realizing the gain on cryptocurrency property)
- Using cryptocurrency to pay for goods and services
- Buying (converting) one cryptocurrency with another
- Receiving mined cryptocurrencies
- Being paid in cryptocurrency or claiming by airdrop
But there is also good news for ordinary HODLers. It is not a taxable event to buy crypto with cash and hold it without gains or losses. Another non-taxable event is donating cryptocurrency to a charity, transferring it between personal accounts, or from an external wallet to an account with an exchange.
It is worth mentioning that the balance of gains and losses affect your taxes, too. Any losses incurred may be deductible, which could help you with your tax bill.
Coinbase warns that taxation is an extremely tricky thing, and it gets even more complicated when it comes to cryptocurrencies. It stresses that it does not provide comprehensive tax advice, and its guide was released for informational purposes only. Coinbase urges investors, if in doubt, to always consult local tax authorities and professional legal advisors to confirm their actual tax obligations.
Do you believe Coinbase’s tax guide will help promote better compliance in the crypto industry? Let us know your thoughts in the comments below!