Should i include "coinbase earn" crypto currencies in tax returns?

Forum|Forum|5 years ago
February 23, 2021
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My spouse earned some free cryptos from coin base after spending some time learning about them. She has not sold it at end of year. Should those be reported for tax purposes?

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Best answer by JohnB5677

No, provided that nothing was sold there is no need to enter anything on your tax return. Transactions are only taxable once they are closed out.

When you do sell these cryptocurrencies they will have a basis of zero because you didn't pay anything for them. Whatever proceeds you get when you sell will be taxable.

JohnB5677Answer

No, provided that nothing was sold there is no need to enter anything on your tax return. Transactions are only taxable once they are closed out.

When you do sell these cryptocurrencies they will have a basis of zero because you didn't pay anything for them. Whatever proceeds you get when you sell will be taxable.

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rhess2021

I actually read on a few different sites that this is not true. I did the same on coinbase earn, and looked at their tax info. It looks like crypto rewards are generally considered misc. income when received, and capital gains or losses will be added to that when sold. I may be wrong but this is what it sounds like to me.

JeffreyR77

This information provided by Opus17 on March 12, 2020 is still valid.

If you file a tax return, you must report all your income, no matter how little, and even if you don't get reporting forms.

However, did you sell the free cryptocurrency or are you holding it? If you didn't sell it, you don' have income yet.

Cryptocurrency is treated like property. You only have taxable income if you sell it for more than you paid for it. (For example, if you buy a comic book for $1 and sell it for $100, you have $99 of income, but only when you sell. As long as you are just holding it, it doesn't create income.)

So if the exchange gives you rewards in the form of cryptocurrency, it only creates income when you sell. Since your cost is zero, all the proceeds are taxable income. But only when you convert it to real money.

mpzmburke24

Like stock, crypto currency gain/loss is reported only when sold. It is important to keep records of the acquisition date and cost so when you do sell, you will be able to report the gain/loss. If you buy and sell crypto the calculations can be overwhelming. Coinbase does not issue form 1099-B. There are third-party software companies that will calculate your gain/loss for you and even prepare Schedule D data that can be imported into TurboTax.

GeorgeM777

Yes, you should include on your tax return the value of the cryptocurrencies that you earned. While you did not mention the term "staking," generally, staking is the process of locking up crypto holdings in order to obtain rewards or earn interest. Whether what you did to earn interest from your cryptocurrency involved staking or some other form of crypto activity, the tax result is the same, namely, you need to report the interest or other earnings that you received as a result of owning cryptocurrencies.

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Korgen

Not necessarily on staking. It all depends on this lawsuit. The IRS offered them the staking reward taxes back, and they said no. Continuing said suit.

https://blockchain.bakermckenzie.com/2021/06/08/novel-lawsuit-brought-against-irs-concerning-tax-implications-of-staking/

mpzmburke24

An exchange from crypto X to crypto Y is a sale of crypto X. The gain/loss for crypto X is the proceeds - cost - fees. Put more simply, how much did you net when sold or exchanged less how much did you lay out to buy it - all in USD. The purchase price for crypto Y in this scenario is equal to the proceeds from crypto X. I'm pretty good at tracking all kinds of data for my investments including capital gain/loss using FIFO. I've been doing it for decades. I would consider myself expert with Excel and have built some pretty cool spreadsheets for that very purpose. That said crypto adds a whole new level of complexity particularly since the fraction of a coin bought and sold is so precise and you are dealing with so many currency conversions. This year I purchased a subscription to Koinly cryptocurrency tax software. Sorry TurboTax - love your product, but in this regard, you just aren't there yet. Maybe next year. Koinly linked to my coinbase and did everything for me - every transaction, and everything I needed to enter for my taxes. I'm told if you use TurboTax online, you can link your Koinly output directly. I have the downloaded software so I had to manually enter each transaction. It took a little time, but I am comforted knowing I did it right.

Elvin1924

i have 54 pages of purchases/trades within coinbase. I purchased koinly and its saying i have a 9k profit when i have left all my money within coinbase. shouldnt that be a 0 gain

mpzmburke24

Did you make any exchanges within coinbase? In other words did you sell crypto X and use the proceeds to purchase crypto Y? If you did, the profit you made on crypto X is a capital gain even if you did not take the money out. I'm guessing with 54 pages of transactions you have quite a few exchanges.

lara_vinson

Yes, in most countries, you should include cryptocurrencies earned through Coinbase Earn in your tax return. Here's a simple explanation:

Why?
Coinbase Earn rewards you with small amounts of crypto for learning about different projects. Even though it feels like a free reward, tax authorities (like the IRS in the U.S., HMRC in the U.K., and others globally) generally consider it taxable income.

What You Need to Report:
The fair market value (in your local currency) of the crypto at the time you received it.

This is treated as ordinary income.

Later, if you sell or trade that crypto, you'll also need to report any capital gains or losses from that transaction.