Over the past decade, Coinbase has grown exponentially to become one of the most popular cryptocurrency exchanges in the world. But how does Coinbase deal with its traders in terms of tax? Does Coinbase report to the IRS, or is that up to you and you alone?

Do You Have to Pay Tax on Crypto?

gold bitcoin on top of hundred dollar bills

Before we get into Coinbase's relationship with the IRS, let's quickly run over the basics of cryptocurrency tax within the U.S.

In the U.S., cryptocurrency holdings are treated similarly to other traditional assets like stocks or gold in that they are considered property. This means that you must include your cryptocurrency holdings or earnings within your annual tax return.

Even if you receive crypto for free via an airdrop, you'll need to report it. The same goes for profits made via crypto mining. Because some people trade crypto on a daily basis or mine around the clock, it's important to keep track of your earnings so that your tax return can be accurate.

So, if U.S. residents must pay crypto taxes, where does Coinbase come into play?

Does Coinbase Report to the IRS?

coinbase website behind magnifying glass
Image Credit: marcoverch/Flickr

Today, Coinbase is a huge name, with a user base of almost 100 million, making a profit of almost $8 billion in 2021 alone. So, it's fair to say that this exchange has an incredibly strong foothold in the crypto industry. And as Coinbase has grown, the crypto market boom has given way to greater crypto tax enforcement on the part of the IRS. So, it makes sense that Coinbase does, in fact, report to the IRS.

If you made over $600 of profit on Coinbase in any given tax year, be it by trading or staking, the exchange will send you and the IRS Forms 1099-MISC, which is used to report any miscellaneous income (hence the "MISC" element of the name). In other words, if you're receiving income that isn't directly from your employer, you can use Forms 1099-MISC to report it to the IRS.

This has been the case since 2021. Prior to this year, Coinbase would instead send Forms 1099-K, which can be used to report any payments received through payment card transactions. You would be required to file Forms 1099-K if you conducted over 200 with a worth equal to or over $20,000 annually. But now, the IRS has cracked down harder on crypto traders, so the financial threshold for reporting is much lower.

In the past, thousands of Coinbase users have been sent warnings from the IRS if Coinbase notifies them of earnings that are not being reported, so it's worth keeping note of how cryptocurrency tax laws are changing and how Coinbase interacts with the IRS if you're a regular user.

Crypto Taxes Are Very Real and Very Important

Cryptocurrency's real-world value has pushed it into the taxable region, meaning anyone who trades in or earns crypto must keep the IRS in the loop. Though many are against these relatively new laws and regulations, it's important to keep a check on your crypto holdings so that you know what to report to the IRS to avoid any repercussions.