The US tax system is famously convoluted and hard to understand. So are cryptocurrencies, digital currencies that have been part of an increasingly popular tech trend in recent years.
And this tax season, a huge number of new crypto traders will have to combine the two as they attempt to figure out their cryptocurrency taxes, as if they weren't having a tough enough 2022 already, with the market experiencing huge dips.
Thankfully, Coinbase is here to help. The large cryptocurrency exchange has just debuted a new tax center on its app and its website. The new module will gather all of a users' tax information into one location. It's a big step towards helping with taxes — but crypto owners will still have a rough road ahead.
How Coinbase Helps
Coinbase will give each user a summary of their taxble activity made through the service, and it will be “broken out over time by realized gains/losses and miscellaneous income,” according to the announcement.
But Coinbase may not have all the info you need: If you gained some cryptocurrency from an outside wallet, for instance, Coinbase won't be able to know the initial value that the currency held when you first acquired it. If that's you, Coinbase has a tax partner in CoinTracker, which can aggregate your data across other wallets and exchanges beyond Coinbase exchange activity.
The extra help is definitely a boon for many crypto owners who may not have experience with taxes beyond filing their W-2 each year, and it's a lot more than most services are doing. Currently, wallets and exchanges don't have any legal requirement to offer their customers a Form 1099-B for their trading activity — the infrastructure bill actually does make this requirement, but it won't be in effect for years.
Coinbase says it'll provide further guides and videos to walk its customers through the process in the near future.
Digital assets count as property when it comes to federal taxes, and that means that anyone with cryptocurrencies must keep track of all their crypto transactions' values at the time of each transaction.
That can add up fast, and it's just the tip of the iceberg: One lengthy explainer about the potential pitfalls of crypto taxes on Reddit last month earned a top comment that simply says “Easier just being poor.”
Tax Season's Rough This Year
Cryptocurrencies aside, there are plenty of additional wrinkles for someone filing their US taxes this year, from the third stimulus check to Child Tax Credits to that meme-driven surge in retail stock trades back in January 2021.
If you made a lot of crypto trades in the past year, we'd recommend starting your tax paperwork yesterday.