Coinbase and Cryptocurrency Taxes Like a Professional

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While doing taxes is normally a dreadful process, cryptocurrency taxes could make things a little more complicated. If you use Coinflash then you are in luck, Coinbase has made a crypto calculator to help you out.  Coinbase has a helpful blog post on the topic as well.

Coinflash uses Coinbase to make all cryptocurrency purchases, and this means that you will have all of your cryptocurrency purchases available to you in a neat, organized Excel document. This Excel document will come in handy whether you do your taxes or get a little help from someone else. The file will show you all of your transactions through the year (buying, selling, sending to someone else.) Cryptocurrency taxes have never been easier!

If you follow this link, it will take you straight to the page on Coinbase that holds the file. Once you retrieve this file, share it with your tax professional to cover all of your Coinbase cryptocurrency transactions. Please keep in mind that this document will not track all of your purchases across every exchange that you use. This file will only show you your Coinbase transactions. You will need to retrieve transactions from other exchanges a different way.

Want an ELI5 on Crypto Taxes?  We asked Andrew Gordon of Gordan Law for a crypto taxes FAQ:

What’s the gist of accounting for cryptocurrency? Give me an ELI5.

The gist is that whenever you sell or change crpyto (ie. btc to eth), there is a tax implication. If you sell crpto you may have a capital gain or loss, depending on the price that you bought it at. Whenever you buy goods with crypto, this is actually a sale — there is now a tax implication.

Can you explain what capital gains is and how it applies to cryptocurrency?

Depending on the period of time you hold the crypto, the tax rate you pay on any gains will differ. If the crypto is held more than a year, long term capital gain rates apply, which is 15% or 20%. If it is held less than a year, short term capital gain rates apply. Short term rates are your ordinary tax rate — the same rate your other income such as wages is taxed at.

How does the government classify crypto and what does that mean for me and my Bitcoin?

The IRS has classified crypto as “property” rather than “currency.” As such, any increases in value are gains when the property is sold. The IRS has not expressed guidance on other areas of crypto such as whether it is eligible for a “like-kind exhange” (ie. going from btc to eth tax free), whether it is considered a foreign asset if held abroad, and certain treatments if held in a retirement account.

My accountant is over 69, is this a problem?

Only if he doesn’t stay up to date on the crypto tax issues and regulations! This is a new and evolving area of tax law — one also that carries significant penalties if not disclosed properly.

I bought a lambo with my earning last year and didn’t report it.

Ooops! Whenever you buy an item with crypto, this is actually a sale of the crypto. Thus, you had a reportable gain (I presume) when you bought the lambo. For example, you bought a lambo with $400k of BTC that cost only $1k to purchase in 2012. In reality, the BTC was sold when the lambo was purchased and the sale resulted in a $399k gain ($400k — $1k). Assuming you held the BTC for greater than a year, the $399k gain would be taxed at the long term capital gains rate. Even at this favorable tax rate, you still owe quite a bit to the IRS for the lambo purchase…

What the most basic advice you can give to someone buying cryptocurrency?

Be aware of the regulations and requirements, and if you are not, hire a good attorney or CPA!

How about an accounting trick? What if I hold my crypto for more than 2 years than sell it? Or use my Ethereum profits on the dark web to buy a stolen passwords? Good or bad idea?

Since there is a lot of gray in the crypto tax regime, there is room to take aggressive positions. For example, the issue of like-kind exchanges remains unanswered. There are people converting millions of one crypto to another (ie. BTC to ETH), which is by definition a taxable transaction. Now, it is possible for someone to argue to the IRS that it is a like-kind exchange and no tax is due. This position would be disclosed to the IRS and then see what happens… There are certainly arguments towards this treatment!

A great tax minimization strategy is to hold crypto later than a year to achieve the long term capital gains rates. The long term capital gains rates are 15% or 20%.

And here’s a video where he breaks it down:

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