It’s tax season again, and if you have holdings in cryptocurrencies, this can be its own particular type of nightmare. Since there are no real regulatory guidelines for reporting income from crypto trading, it can be confusing and difficult to accurately report your worth when these assets are included, which they must be.
Some 13,000 Coinbase clients were recently reported to the IRS by the crypto-exchange, under a mandate from the federal government. That means digital asset holders definitely need to worry about declaring those funds on their taxes. Coinbase has created some tools to help with this and you should probably get an accountant to help you report those assets.
Net losses and gains reports
If you are a trader on Coinbase, the San Francisco-based exchange has released a suite of tax tools designed to help you. You can now get a complete view of your digital asset transactions on a single report, which will show purchases, sales, sent and received transactions, and will allow customers to determine gains and losses from throughout the year.
There are two methods that tax professionals will commonly use to determine this information, First In First Out, and Specific Identification. For more on that, speak with your accountant: you’ll need one to accurately file your taxes if you have been involved in crypto trading.
Additionally, many traders don’t stay on just one exchange, so be aware that the report generated by Coinbase will only give you information about trades that took place on that exchange. Any trading done on another exchange will need to be documented via reports offered by that exchange, or manual record. Just in case you are only on Coinbase though, Coinbase thought of you again!
Automated losses and gains calculation
To traders that have only traded on Coinbase, the exchange offers you the gift of a Tax Calculator. This tool will use the First In, First Out method to automatically provide you with preliminary loss and gain figures. You, or your accountant, should verify this number, but it will give you a good idea of what you have done over the course of the year.
Once again, Coinbase wants you to know that you shouldn’t rely on this tool if you have traded with other exchanges because it cannot take information into account that it doesn’t have. This means that if you have sent or received assets in a non-Coinbase wallet, stored assets on an external storage device, like Ledger or Trezor, or been part of an ICO, you really should just skip the calculator.
Also, if your accountant has been using a method other than First In, First Out for determining losses and gains, you should stick to the same method. Consistency is key to income reporting.
It’s nice to see that Coinbase is trying to streamline this information for its customers. As the crypto trade becomes better established, tools like these, which take user friendliness into account, will likely impact the success of an exchange. Thanks Coinbase!