As the leading platform for buying and selling cryptocurrencies, Coinbase is required by law to send tax forms to the IRS for customers who have made over $20,000 in gains from their crypto transactions. This process, known as “information reporting,” is how the IRS knows which taxpayers owe taxes on their cryptocurrency gains.
While Coinbase is not required to withhold taxes from its customers, it does provide them with the option to do so. For customers who do not want to pay taxes on their gains, they can choose to have Coinbase withhold the appropriate amount of taxes before they sell their cryptocurrencies.
Coinbase has also partnered with TurboTax to help customers file their crypto taxes. Through this partnership, Coinbase customers can import their transaction history directly into TurboTax and have all of their gains and losses calculated automatically.
While some taxpayers may be hesitant to report their cryptocurrency gains to the IRS, it is important to remember that failing to do so can result in significant penalties. The best way to avoid these penalties is to make sure that you accurately report your gains and losses on your tax return.