Recently a court ruling that instructed Coinbase to hand over customer data to the IRS. As part of the ruling, the records of about 13,000 Coinbase customers and their transactions between 2013 and 2015 were to be handed to the tax body.
This new development from Coinbase seems to be a fallout from its legal tussle with the IRS and the need to comply with what has become increasingly stricter tax regulations concerning cryptocurrency in the United States.
The unveiling of the new tax tools was presented in a blog post on the Coinbase Medium account on Monday, March 12, 2018.
US-based customers of Coinbase can now prepare their tax filings right from their account on the exchange platform. The process involves three basic steps; generate a complete view of the account holder’s transactions on the platform, calculate the gains/losses, and then file the taxes.
The process begins by obtaining a complete picture of the account holder’s transactions. With a single click, customers can generate a report that details all the digital currencies that they have bought, sold, or received on the platform.
This report then becomes the cost basis for all transactions carried out by the user inclusive of the fees charged by Coinbase. However, transactions that involved reversals may not be included in the cost basis report.
The second step is where the account holder gets to calculate their gains/losses. The blog post advises that customers seek help from a tax professional when doing this part. The process basically involves subtracting the cost basis from the revenue generated for every individual transaction.
There are a number of methods that can be used to accomplish the computation but two are suggested; the First In First Out (FIFO) method and the Specific Identification (SpecID) method.
The final step is the actual tax filing procedure. Coinbase advises its customers to ensure that they consult a tax professional before filing their taxes.
Customers who participate in the crypto market only via Coinbase can use the new tax tools to automatically calculate their gains/losses. The default method used for this automatic computation is the FIFO method.
There are a number of limitations to using the new tax features on the Coinbase platform. The report generated by the new tax tools can only provide a comprehensive tax filing for customers who do not carry out any crypto transaction outside Coinbase.
In the blog post on Medium, Coinbase took time out to list a number of limitations to the tax report generated by the system.
People who have participated in an ICO used a different method apart from FIFO to calculate the gains/losses in the crypto market, and others who have cryptos stored in hardware wallets cannot use the report as a comprehensive tax report.
Also, customers who use other crypto exchange platforms in conjunction with Coinbase will have to obtain tax reports for each individual platform they use.
Featured image by Blake Kathryn