Digital currency exchange Coinbase has launched a new gains/losses tax tool in its attempt to make it easier for its user base to report U.S. taxes.
In a blog post published yesterday, the San Francisco-based cryptocurrency exchange said that after a user determines their cost basis – via a generated report that shows all buys, sells, and receives all currencies linked to their Coinbase account – they will be able to use the tax calculator to find out their gains and losses.
This measure comes at a time when Coinbase has been ordered to hand over the records of 14,000 of its users between 2013 and 2015 to the Internal Revenue Service (IRS). In November, the cryptocurrency exchange lost a lawsuit against the tax agency. The IRS is attempting to find out information to determine whether users are deliberating avoiding paying their tax.
The blog said, though, that there is no information from the agency on ‘how to apply your cost basis to individual sales or exchanges of digital assets,’ adding that the exchange has seen two approaches.
The first is a first-in-first-out method (FIFO). This assumes that the first assets a person held were also the first they sold or exchanged. The company said:
Your gain/loss is calculated based on the price you paid for the oldest assets in your portfolio, and the asset price at the time of sale or exchange. This is the most common approach for traditional investments.
The second method is a Specific Identification (SpecID). This ‘relies on investors to specifically identify to their tax professional the assets they sold or exchanged.’
The exchange said:
This is also a common approach for traditional investments, but requires significant effort from the investor.
For Coinbase, however, it is offering a tax calculator for its users based on the FIFO method. It warns, though, that the information from the gains/losses calculator ‘should not be used as official tax documentation without validating the results with your tax professional.’