Coinbase has launched a new gain/loss calculating tool intended to help users keep track of their U.S. tax requirements. The calculator allows users to generate a report showing any capital gains or losses made while trading on the world’s most popular Bitcoin exchange platform.
Since 2014, when the U.S. Internal Revenue Service (IRS) announced it would treat cryptocurrencies as a taxable type of property, users have struggled to stay on top of changing tax laws.
Taxes applied to digital currencies can be complex, but the IRS wants a share of cryptocurrency profits. As a result, the IRS demanded San Francisco-based Coinbase provide trading information and historical documentation for some of its U.S users, including handing over taxpayer IDs, names, addresses, birth dates, and transaction records for users conducting transactions totaling more than $20,000 USD in the years between 2013 and 2015.
Coinbase alerted its users to the demand in a note posted to the platform’s website: “On February 23, 2018, Coinbase notified a group of approximately 13,000 customers concerning a summons from the IRS regarding their Coinbase accounts.”
Three weeks prior to the IRS notice, Coinbase issued 1099-k tax forms to users in a subtle reminder to pay taxes on any capital gains generated from trading cryptocurrencies. Users whose gains exceeded $20,000 for the 2017 year, or those with more than 200 receipt transactions on the Coinbase exchange are required to submit tax forms verifying their trading activities.
In an effort to provide greater transparency for user activity on its platform, Coinbase launched the tax calculator. The calculator uses a first-in-first-out (FIFO) accounting method, but only covers trading activities conducted on Coinbase’s platform. Users who have bought or sold cryptocurrencies using other platforms or those who may have participated in an initial coin offering (ICO) will need to find other means of reporting their trading activities.
While the capital gain/loss reports generated by Coinbase provide a preliminary result for users, it’s important to verify any results with a tax professional. Preliminary reports should not be used as official tax documentation when declaring any profit or loss from trading cryptocurrencies.