This year the cryptocurrency company, Coinbase, sent out 1099-K forms to customers whose capital gains rose to the level needed to pay taxes. This was the result of the IRS successfully suing Coinbase for their customer list. A 1099 form is for non-employee compensation and a 1099-K form is for Payment Card and Third Party Network Transactions. If you have sold Bitcoin or another cryptocurrency over the years through Coinbase, you may have to deal with tax resolution on multiple tax returns. At Exigo Business Solutions we can deal with this issue and will be pleased to help you out.
Coinbase is a San Francisco based digital currency exchange. They run exchanges for Bitcoin and Bitcoin Cash as well as Ethereum, Ethereum Classic, and Litecoin in the USA and internationally. A Bitcoin client who purchased a Bitcoin in July of 2010 paid eight cents. By 2013 Bitcoin moved into the $1,000 range and by December 2017 Bitcoin peaked at $17,900. A Bitcoin is now worth around $6,400.
The IRS will view any profits that you made on the sale of Bitcoin or other cryptocurrencies as capital gains. You will want to consult a tax advisor to decide how to deal with this situation. First in, first out (FIFO) is one method for reporting capital gains and Coinbase has a widget that will automatically calculate profit and loss on a FIFO basis. However, this may not be the best route for you to take. A more tedious but perhaps better approach is to specifically identify which bitcoins were bought and sold and report that way. And, there are other approaches as well. The best route is to consult your tax advisor.
And, of course, if a person has bought and sold Bitcoin via other exchanges, those profits or losses will need to be dealt with as well.
The problem for Coinbase users who have bought and sold bitcoin over the years is that they may have many years of tax returns that are not accurate. The end results of not paying your taxes can be painful. There may be penalties, installments to play to catch up, and tax liens or levies. This is not a situation that you want to deal with on your own or with an inexperienced tax preparer. Tax resolution requires knowledge, skill, and experience. At Exigo Business Solutions we deal with tough issues like this. We work to protect our clients from the worst consequences and can very often help them avoid penalties or even reduce their expected tax bill.
As a simple example, if you purchased Bitcoin near the top at the end of 2017 and lost money if you sold after it fell, you may be eligible to take that capital loss against other income. Working with an experienced tax accountant can make all the difference.
What If You Have Not Sold Any Bitcoin, Yet?
Capital gains are due when capital is gained. So, if you have a stash of Bitcoin and are considering when to cash out and take a little profit, talk to us at Exigo Business Solutions. A little tax planning could go a long way in reducing your tax bill and retaining profits. Also, when Bitcoin was invented it was envisioned as a way to pay for things, like regular money. If you have, in fact, paid for goods and services with your bitcoin there may be a tax consequence. Talk to us before you have to deal with the IRS on this and other issues related to your Bitcoin or other purchases, sales, or other transactions through Coinbase.