Coinbase Scraps Bitcoin Tax Form That Led Users to Overpay
Cryptocurrency exchange Coinbase will issue a new tax form to replace one that caused some people to overpay on their Bitcoin and crypto taxes. But just like the old form, the new one is of limited use to taxpayers, a crypto tax expert told Decrypt.
As spotted by Shehan Chandrasekera, head of tax strategy at crypto tax firm CoinTracker, Coinbase updated a help page to inform customers that it is abandoning its old tax form that provided customers with total proceeds of trades executed on the platform in favor of one that only includes information about money earned from Coinbase’s interest-bearing products.
1/ Next year, Coinbase is planning to issue a new crypto tax form (1099-MISC) and abandon the old Form 1099-K which created a tax nightmare for many taxpayers.https://t.co/ZKUB6kGbdX pic.twitter.com/ujRg6KwTB5
— Shehan Chandrasekera, CPA 🧗♀️|🇱🇷|🇱🇰 (@TheCryptoCPA) November 24, 2020
The San Francisco crypto exchange is scrapping the 1099-K, which provided customers with information about trades they had placed on the platform. It provided this form to anyone who traded $20,000 through at least 200 transactions during the tax year.
Under US tax law, taxpayers must report gains made from cryptocurrency trading and interest earned from crypto lending protocols.
However, Coinbase’s 1099-K form omitted “cost basis” information—how much someone paid for some cryptocurrency they sold on the platform—which is crucial for anyone trying to work out capital gains tax. Coinbase’s forms were, thus, useless.
They caused some to overpay on taxes, according to Coindesk, since the IRS sent out letters based on Coinbase’s estimations. To be clear, the confusion was due to the tax form itself, and a general lack of awareness on how to file crypto taxes among users, rather than a Coinbase-specific blunder.
In its stead, Coinbase will henceforth issue a new form, called 1099-MISC, to all customers subject to US tax law who have earned more than $600 from Coinbase Earn, USDC Rewards and/or Staking in 2020.
It is unclear whether the form also includes a comprehensive list of cryptocurrency trades executed on Coinbase (Decrypt has reached out for clarification). The bar for receiving such a form is also lower. “Essentially, they're subjecting more users to these reporting requirements,” Chandrasekera told Decrypt.
However, just like the old form, 1099-K, the new 1099-MISC form “is not going to be useful either, because it doesn't report your cost basis,” said Chandrasekera.
Of course, it’s impossible for Coinbase to tell users how much they paid for cryptocurrencies—a customer may have bought cryptocurrencies on, say, Uniswap, and then sold it on Coinbase.
Coinbase is nonetheless issuing its customers the form because US law requires that crypto exchanges must hand its customers relevant tax forms to inform the tax returns they file to the US tax office, the Internal Revenue Service.
Additional scrutiny to hand out these forms following an audit on the IRS last month from the US Treasury Inspector General for Tax Administration, which found that no major exchanges are issuing a sufficient number of tax forms.
Perhaps facing additional scrutiny from the IRS, or perhaps in an effort to ready its company for a rumored public listing, Coinbase is upping its game, said Chandrasekera.
Chandrasekera said the uselessness of the new forms doesn’t matter that much. “These forms will not give you everything you need to file your taxes accurately,” he said.
“But these forms will give you that essential signal at the end of the year: You gotta you got to talk to a CPA, and you got to do something. The IRS will appreciate that.”