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

[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.

[SirOsisOfTheLiver]

They are both right.

You can hold a coin as long as you want without paying taxes.

when you sell one for another you have to pay taxes on your sell price - your buy price and that amount becomes your new buy price for the new coin.

you better either learn how it works or go to a tax expert.  for stocks, brokerages keep track of this for you, but for trades in crypto, you need to know when you bought and how much you paid and when you sold and how much you paid.  if you sell for $, you just pay tax on the price, but if you "exchange one coin for another" you need to know the exact price of both coins at the time you made the exchange.

Good luck and either do your research, or get help.

[Elvin1924]

Yes i moved coins around a lot so that would explain it. It is just confusing bc my overall coinbase total did not go up 9k, it went up 3, so not sure where that gains number comes from. Now I have to pay 3k in taxes for 3k in profits 😕

Basically I should not be moving coins back and forth?

[RaifH]

Certainly moving coins back and forth triggers a taxable transaction that you would not get if you adopted a "HODL" strategy. It may not make sense that you are paying 3k in taxes on 3k in gains, but there is a difference between what you are considering gains and what the IRS considers "realized gains." Gains are only realized when you have a taxable transaction, like exchanging one coin for another. If you hold on to the same coin, the gain is built-in, but does not get realized until you actually sell it. 

If you started the year with 50k in coins and now have 53k with a realized, taxable gain of 9,000, it would mean that your basis in your 53,000 in coins is 50,000 + the 9,000 you are reporting on your 2021 taxes. So if you were to sell them all, you would have a $6,000 loss to report in 2022. That built-in loss is still there, no matter what happens to your holdings. If they appreciate up to $70,000 and you sell them, you are only realizing $11,000 of the gain in 2022 because you already realized $9,000 of it in 2021. This is a gross over-simplification, but hopefully it helps understand what's going on a little better. 

@Elvin1924

[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-imp...

[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.