U.S.-based cryptocurrency exchange Coinbase has partnered CoinTracker, a crypto portfolio and tax manager, to offer their customers cryptocurrency tax solutions. The integration offers Coinbase customers the option to report their capital gains and losses from cryptocurrency trades using CoinTracker.
This partnership comes at a time when the U.S. Internal Revenue Service (IRS) is asking every American about their virtual currency transactions on the first page of IRS Form 1040 for the 2020 tax season. This is the latest move by the tax regulator to show its seriousness on taxing cryptocurrency transactions and investments.
In the draft released recently by the IRS, after asking for personal details, the draft form asks, “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” Yes or No.
The IRS treats virtual currency as a commodity or property, and not as real currency, for federal tax purposes. Therefore, virtual currencies are also subject to capital gains laws. The current guidance for taxpayers is to file each and every cryptocurrency transaction executed.
With a click of a button from the Coinbase Taxes & Reports page, Coinbase customers can use the CoinTracker platform to calculate their gains and losses from cryptocurrency transactions.
The platform will automatically generate the relevant tax forms to report crypto gain or loss, including IRS Form 8949, Schedule D, and Schedule 1. These forms can then be used as part of the income tax return.
The forms generated by the platform can be used whether the customer is filing individually, with an accountant, or with data via tax filing software integrations such as TurboTax and TaxAct.
In November last year, the Tax Law Offices of David W. Klasing warned investors of Coinbase that the IRS is coming after them for failure to report virtual currency holdings. They have knowledge of increased IRS enforcement activity involving Coinbase.
This information is based on first-ever transparency report released by Coinbase in October, which contained some data that shows the IRS, and its Criminal Investigation Unit as being one of the top receivers of information from Coinbase, alongside the FBI and CIA.
The data reveals that the IRS is requesting information from Coinbase for speedily tallying the information with its own taxpayer data. It is looking for discrepancies about investors holdings on Coinbase that have not been reported by them on taxpayers’ returns.
Many people who hold cryptocurrency still do not realize, or simply ignore, their tax and reporting requirements and can end up facing serious civil and criminal trouble later.
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