2019 crypto tax guide

Crypto and bitcoin taxes in the US

Updated 1/24/2019

Did you sell, use, or convert crypto in 2018? If so, you may owe taxes if you’re a US taxpayer. Here’s a look at what that could mean, the steps you may have to take, what forms you’ll need, and how gains and losses may affect your taxes.

First, let’s get this out of the way...

Coinbase doesn’t provide tax advice. We put this guide together for informational purposes only and it shouldn’t be considered tax advice or an individualized recommendation. Please consult a tax-planning professional regarding your personal tax circumstances.


 

The million-dollar crypto question

 

1.1 Do I have to pay crypto taxes?

At Coinbase, we see crypto as the foundation for tomorrow’s open financial system — but it’s also a part of today’s traditional one. To make taxes easier, the IRS has issued crypto tax guidance.

In 2017’s tax season, we received a lot of questions from crypto newbies and experienced customers alike. We get it — paying bitcoin taxes and other crypto taxes can be confusing. And while we can’t give tax advice, we want to make crypto easier to buy, use, sell, and use. This guide is our way of helping you better understand your 2018 crypto tax obligations.

There’s a lot of conflicting content out there, but make no mistake: you are required to report gains and losses on each cryptocurrency transaction or when you earn cryptocurrency, even if there is no gain or loss or the gain or loss is not material. Regardless of whether an exchange sends tax forms to you and the IRS, the IRS holds you responsible for reporting all income and transactions. Exchanges like Coinbase provide transaction history to every customer, but only customers meeting certain mandated thresholds will also receive an IRS Form 1099-K.

One quick note if you’re a non-US investor: crypto taxes are treated differently country-to-country. This guide only covers the US in 2018. Be sure to consult a local country tax advisor to confirm your tax reporting obligations.


In a nutshell...

All crypto sells, conversions, payments, donations, and earned income are reportable by US taxpayers


The reason that buying and selling crypto is taxable is because the IRS identifies crypto as property, not currency. As a result, tax rules that apply to property (but not real estate tax rules) transactions, like selling collectible coins or vintage cars that can appreciate in value, also apply to bitcoin, ethereum, and other cryptocurrencies.

To no one’s surprise, the IRS isn’t kidding around. Failure to report income, including income from the sale of bitcoin, ethereum, or other crypto, could result in interest on unpaid taxes and a number of penalties. Please consult with a tax-planning professional regarding your individual reporting obligations.

With all that in mind, here’s our list of five steps you can take to help you understand if you may need to pay crypto taxes, how to determine the amount, and what forms you may need. Let’s dive in.


 

Steps to take

 

2.1 Determine if you owe crypto taxes

Even if you’re in the “Just HODL it” camp, it’s worth evaluating your crypto transactions in 2018 to determine if you may owe taxes.

What's taxable

In short, a lot. Even if you're in the "just HODL it" camp, it's worth evaluating your transactions. Here are some examples of taxable crypto events:

Selling crypto for cash

In other words, realizing the gain on your crypto property (don’t forget losses could help with your tax bill)

Paying for goods or services

For example, using Bitcoin to buy a pizza

Buying one crypto with another crypto

I.e. “converting” one crypto into another. Using bitcoin to buy ethereum is considered a disposition of the bitcoin, for example

Receiving mined crypto

Including bitcoin, ethereum classic, and more

Being paid in crypto or by airdrop

When you’re paid in crypto by an employer, your crypto is classified as compensation and will be taxed according to your income tax bracket

Transactions must be reported at their fair market value as measured in US dollars. So if you bought a pizza with bitcoin, you would have a disposition of the bitcoin equal to the cost of the pizza (the fair market value) in dollars.

What's not taxable

Some non-taxable events include:

Donating crypto to a qualified tax-exempt charity or non-profit

GiveCrypto.org, for example

Buying crypto with cash and holding it

(HODLers, anyone?) There's no gain or loss recognized if it's just held

Transferring crypto between wallets

Make sure to check the transaction records of your exchanges to confirm they’re not recorded as dispositions

Transferring crypto between Coinbase accounts, or from an external wallet to a Coinbase account

Coinbase to Coinbase Pro, for example

So, you have crypto transactions to report?

First, you’ll need a single view of all your crypto-related transactions, each of which must be reported on your tax return.

Coinbase customers

Coinbase customers can generate reports with all buys, sells, sends, and receives of all crypto associated with their Coinbase and Coinbase Pro accounts. These reports show what we think your cost basis could be for all purchases and proceeds for all sales, inclusive of Coinbase fees. One thing to remember: these reports only detail transactions associated with your Coinbase account, and will not be correct if you moved crypto from other wallets or exchanges because Coinbase doesn’t have information about your holdings prior to them moving onto the Coinbase platform. If you used other exchanges, you’ll need to download similar reports from them and reconcile.

Download your Coinbase account report

For all transactions, you need the cost basis of each transaction — the amount in dollars that you spent originally to buy it — and the amount in dollars it was worth when you sold it. This will be used to calculate your gains and losses.

Quick note on proceeds: when you see them on a 1099-K, the amount can look bigger than you expected since they take into account all the transactions you made in a year.

 

2.2 Calculate gains and losses

Now that you have a comprehensive view of your 2018 activity, you’ll need to figure out whether you incurred gains or losses on each transaction. This probably means you’ll need to review each transaction and determine the cost basis to see if it’s a loss or a gain.

FYI:

Losses can be used to offset capital gains in a given tax year, plus $3,000 — this means that any losses incurred on bitcoin and other crypto may be deductible, unlike losses on your car.

Coinbase customers: Use our Gain/Loss Calculator

This tool can help you determine a preliminary gain/loss amount for 2018 for your Coinbase activity. This tool is intended to assist you in compiling information, but it will not have information about crypto-related transactions outside of Coinbase. It's important to review and verify the information for accuracy depending on how you transacted on Coinbase. This tool shouldn’t be used as official tax documentation.

Use our Gain/Loss Calculator >

Head's Up: Our Gain/Loss Calculator won't be accurate if you have:

  1. Bought or sold digital assets on another exchange
  2. Sent or received digital assets from a non-Coinbase wallet
  3. Sent or received digital assets from another exchange including Coinbase Pro
  4. Stored digital assets on an external storage device
  5. Participated in an ICO
  6. Previously used a method other than first in, first out (FIFO) to determine your gains/losses on digital asset investments
 

2.3 Consult a professional

We’re go-getters and DIYers, and a lot of our customers are the same, but paying bitcoin taxes and other crypto taxes is complex. So when in doubt, consult a qualified tax professional.

In plain English, Coinbase doesn’t provide tax advice, even though we want every member of the crypto community to avoid the confusion we’ve seen in the past few years. This educational guide was prepared for general informational purposes, and we hope it helps, but we just can’t replace the attention a tax professional will give your unique situation.

 

2.4 Prepare your forms

Here are some forms you may want to get familiar with. Some we provide, and some you put together yourself.

Forms you may need


Have transactions that qualify as a capital gain or loss? Those go here and can be filled out using your transaction reports from various exchanges.

Form 1040 (Schedule D, Capital Gains and Losses)

Commonly referred to as just Schedule D, this is the summary of your capital gains and losses.

Form 1099-K (Payment Card and Third Party Network Transaction)

Only the government could come up with a tongue-twister of a name like this. Anyway, if you had more than $20,000 in gross proceeds and more than 200 transactions in 2018 on Coinbase Pro, Coinbase Prime, Coinbase Commerce, or an equivalent exchange, you should receive this form which shows all of the transactions that passed through your accounts in a given calendar year. Note that this doesn’t record your cost basis — it’s just an aggregation of all the proceeds you received from your disposition transactions. You still have to report the transactions individually to the IRS.


American taxpayer living abroad?

If you live outside the US, you’ll want to check to see if you’ve received all the forms you need to file your tax return. Just in case, make sure you have detailed transaction history reports that reflect all your purchases and sales across all exchanges you used. If necessary, you may have to contact your exchanges directly.

 

2.5 File your taxes

You’ve got your transactions, you know your gains and losses, you’ve consulted a tax-planning professional, and you have your forms ready. Pat yourself on the back: you’re probably ready to file your taxes (though it doesn’t hurt to check with the experts one last time).

Congratulations, and we hope this guide helped you out!


 

Next steps

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Resources and extra info

 

4.1 What the IRS says, goes

Be in the know about what the IRS says about bitcoin taxes and crypto taxes. It’s worth reviewing the official IRS guidance from 2014 and Publication 544. You may want some caffeine handy, though.

 

4.2 Buy or sell stablecoin?

If you hold a stablecoin such as USD Coin that is valued at $1, and you bought it for exactly $1, you have no gains or losses when you sell out of that stablecoin. So while technically stablecoin transactions are taxable and still reportable, there’s no gain or loss to claim.

 

4.3 Important terms

While you’re in the process of preparing your tax forms, you’ll probably run into some (a lot) of technical terms. Here are some of the more common ones:


Capital assets

A capital asset is property of any kind that you own, including stocks and bonds, a home, and crypto.

Cost basis

Your basis is the cost, in dollars, that you actually paid for crypto when you purchased it, adjusted for any related costs.

Cost basis

There is no standard guidance from the IRS on how to apply your cost basis to individual sales or exchanges of bitcoin, ethereum, and other cryptocurrencies. We’ve seen these common approaches, in addition to the many others out there:

First In, First Out (FIFO) — This method assumes that the first assets you purchased are also the first assets you sold or exchanged. Your gain/loss is calculated based on the price you paid for the oldest assets in your portfolio, and the asset price at the time of sale or exchange. This is the most common approach for traditional investments.

Specific Identification (SpecID) or Last In, First Out (LIFO) — SpecID relies on investors to specifically identify to their tax professional the assets they sold or exchanged. LIFO is one programmatic strategy that assumes the last assets you purchased are the first assets you sold or exchanged. For any of these approaches, you’ll want to consult a tax professional.

Fair market value

For tax purposes, the fair market value of crypto is the dollar value of the crypto at the time of a transaction.

Gains

Gains are the profits you make on property. These gains are “unrealized” if they’re on paper — for example, if your bitcoin has increased in value but remains in your possession. When you sell your property and receive the cash value of that gain, though, the gains become “realized” and have tax implications.

Like-kind property and crypto

There are plenty of questions about whether or not investors can claim a direct crypto conversion (e.g. bitcoin to ethereum) as "like-kind", avoiding taxes on those transactions. The tax laws changed beginning in 2018, and like-kind exchanges are only available to real estate transactions.

Long-term vs short-term gains

If you’ve sold a capital asset, you need to determine whether the asset was long-term or short-term. Long-term means that you held the asset for over a year before selling or disposing of it, while short term applies to assets you’ve held for less than a year. Long-term capital gains are often taxed at more favorable rates than short-term capital gains.

Losses

Losses occur when you dispose of your property for less than your cost basis. If your crypto is a capital asset under the definition above, you can use a capital loss on that asset to offset capital gains from other assets for that tax year (plus $3,000).

Ordinary assets

Ordinary assets include things like inventory and stock-in-trade (i.e. the goods and services that a business sells day in and day out to its customers), and property acquired in a trade or business. If you think you own crypto as an ordinary asset, consult a tax professional.

Proceeds

Generally, proceeds are the money you received when you sell your property. If you sold your crypto for dollars, the amount of money received is obvious. If you sold your crypto for a different crypto (i.e., you “converted” one crypto into another), then you must determine proceeds by reference to the dollar value of the crypto you received at the time of receipt. Gains are computed as proceeds minus your cost basis (what you paid for the original crypto).

 

4.4 Relevant tax forms


A majority of investors own crypto as capital assets, and use “Sales and Other Dispositions of Capital Assets, Form 8949” to report all their individual crypto transactions. Here, an investor describes assets transacted, including the dates they acquired and sold it, how much they made, the cost of doing the transaction, their net gain or loss, and if it was short or long term.

Form 1040 (Schedule D, Capital Gains and Losses)

This form summarizes your total short-term and long-term capital gains and losses from your Form 8949, Sales and Other Dispositions of Capital Assets.

Form 1099-K (Payment Card and Third Party Network Transaction)

A Form 1099-K is an informational form that reports income (but not cost basis, gains, or losses) from credit card and third-party networks. If you had sales transactions of more than $20,000 and more than 200 transactions in a calendar year on Coinbase Pro, Coinbase Prime or Coinbase Commerce, you will receive a Form 1099-K. The third-party payment settlement entity — in this case, Coinbase – is responsible for sending you a 1099-K if you meet these qualifications.

Note: Coinbase customers (who do not also use Coinbase Pro) will not receive 1099-Ks — they are not required at this time.