Coinbase IRS Reporting: What You Need to Know About Tax Requirements

Cryptocurrency transactions are subject to IRS tax rules, and Coinbase, as a major exchange, must report certain user activity. Failing to account for taxable events can lead to penalties, making it essential for users to understand their obligations.

While not all transactions require reporting, specific thresholds determine when Coinbase must send information to the IRS. Understanding these rules helps avoid surprises during tax season.

Reporting Thresholds and Requirements

The IRS requires Coinbase to report transactions exceeding certain thresholds, which vary based on activity type and total amount transacted. A key change in recent years is the updated reporting requirement for third-party settlement organizations, including cryptocurrency exchanges. Under the American Rescue Plan Act, the threshold for reporting transactions via Form 1099-K was lowered to $600, but enforcement was delayed until 2024. For tax year 2023, the previous threshold of 200 transactions and $20,000 in gross payments still applies. Beginning in 2024, a single transaction exceeding $600 could trigger reporting.

Coinbase also reports income-related transactions such as staking rewards and referral bonuses when they exceed $600 in a calendar year. These are reported on Form 1099-MISC. Buying and holding cryptocurrency is not taxable, but selling, converting, or using crypto for purchases can generate taxable income. The IRS treats these transactions as capital gains or losses based on the difference between the purchase and sale price.

Some states, including California and New York, have additional cryptocurrency tax reporting requirements. Coinbase follows IRS guidelines but also complies with state-level regulations, which may result in additional tax forms for users in certain jurisdictions.

Common Tax Forms

When Coinbase reports user activity to the IRS, it does so using specific tax forms. The type of form a user receives depends on the nature of their transactions.

1099-MISC

Form 1099-MISC reports miscellaneous income, including cryptocurrency rewards and bonuses. Coinbase issues this form to users who earn at least $600 in staking rewards, referral bonuses, or similar payments in a tax year. The IRS treats these earnings as ordinary income, subject to the taxpayer’s marginal income tax rate.

For example, if a user earns $800 in staking rewards, this amount is reported on Form 1099-MISC and must be included on their tax return. Unlike capital gains, which are taxed only when an asset is sold, income reported on this form is taxable in the year it is received. Failure to report this income can result in penalties, including interest on unpaid taxes and accuracy-related penalties of up to 20% of the underpaid amount.

1099-K

Form 1099-K reports payment transactions processed through third-party networks. Historically, this form was issued only if a user had more than 200 transactions and over $20,000 in gross payments in a calendar year. The American Rescue Plan Act lowered the threshold to $600, but enforcement was delayed until 2024. For tax year 2023, most users will not receive a 1099-K unless they meet the previous threshold.

The form reports the total gross amount of transactions, not taxable income. This can create confusion because it does not account for cost basis—the original purchase price of the cryptocurrency. For instance, if a user receives a 1099-K showing $25,000 in gross transactions but originally purchased the crypto for $22,000, their taxable gain is only $3,000. Taxpayers must maintain their own records to accurately calculate gains and losses, as the IRS expects them to reconcile the reported amounts with their actual tax liability.

1099-B

Form 1099-B reports proceeds from the sale of assets, including cryptocurrency. Unlike 1099-K, which reports gross transactions, 1099-B includes details such as the date of acquisition, sale price, and cost basis. This form helps taxpayers determine their capital gains or losses.

Short-term capital gains, from assets held for one year or less, are taxed at ordinary income tax rates. Long-term capital gains, from assets held for more than a year, are taxed at lower rates of 0%, 15%, or 20%, depending on income level. If a user sells Bitcoin for $10,000 after purchasing it for $7,000, the $3,000 gain is subject to capital gains tax. If held for over a year, the tax rate is lower than if sold within a year.

Coinbase has not historically issued 1099-B forms to all users, but in 2023, it announced plans to begin providing them in compliance with IRS regulations. This change aligns cryptocurrency reporting with traditional brokerage accounts, making it easier for users to file accurate tax returns.

Personal vs. Business Transactions

The IRS distinguishes between personal and business cryptocurrency transactions, as different tax rules apply depending on how digital assets are used.

For individuals who buy and sell cryptocurrency for personal investment, any gains or losses are treated as capital gains, similar to stocks or real estate. These transactions are reported on Schedule D and Form 8949, where taxpayers list each sale, the cost basis, and the resulting gain or loss. If an individual incurs losses, they can deduct up to $3,000 per year against other income, with any excess losses carried forward to future years. Personal investors cannot deduct expenses related to trading, such as exchange fees or subscription services for market analysis, unless they qualify as professional traders under IRS guidelines.

For businesses that accept cryptocurrency as payment, the fair market value at the time of receipt must be recorded as business income. This amount is included on Schedule C for sole proprietors or the appropriate tax return for corporations and partnerships. Businesses can deduct expenses related to crypto transactions, such as exchange fees, wallet security costs, and transaction processing fees. Additionally, if an individual actively trades cryptocurrency as a primary source of income and meets IRS criteria for being classified as a trader rather than an investor, they may be eligible to deduct trading-related expenses and elect mark-to-market accounting, which treats all holdings as sold at year-end to simplify tax reporting.

Potential Reporting Exemptions

Not all cryptocurrency transactions trigger mandatory reporting by Coinbase. One exemption applies to transfers between wallets or exchanges owned by the same individual. Since these movements do not constitute a sale or taxable event, they are not reported to the IRS, though users must still track cost basis and holding periods for future tax calculations.

Another exemption applies to cryptocurrency gifts. Under IRS regulations, individuals can gift up to $17,000 per recipient in 2023 without triggering a gift tax filing requirement. While the recipient assumes the original cost basis of the gifted asset for capital gains purposes, Coinbase does not report these transactions to the IRS. However, if the total value of gifts exceeds the annual exclusion threshold, the donor must file Form 709, though no immediate tax liability arises unless lifetime gift and estate tax exemptions are exceeded.

Documenting Trades

Maintaining accurate records of cryptocurrency transactions is necessary for tax compliance. Since Coinbase and other exchanges may not provide a complete record of cost basis, users must track their own transaction history to ensure accurate reporting.

Users should keep detailed records of each trade, including the date of acquisition, purchase price, sale price, transaction fees, and the fair market value at the time of the transaction. This information is necessary for calculating capital gains and losses, particularly when using cost basis methods such as First-In, First-Out (FIFO) or Specific Identification. The IRS allows taxpayers to choose their preferred cost basis method, but once selected, consistency is required across all transactions. Additionally, records of staking rewards, airdrops, and other income-generating activities should be maintained, as these are taxable upon receipt. Using crypto tax software or exporting transaction history from Coinbase can simplify record-keeping, ensuring all necessary details are readily available for tax filing.