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Coinbase has disabled its margin trading service and is also changing the tax form they send to their users during the tax season. According to two new blog posts from the company, the move to cancel margin trading was prompted by the guidance the Commodities Futures Trading Commission (CFTC) released in March and the move to change the tax form was caused by the errata IRS interpretation of the previous form Coinbase users had to submit (1099-k).
Deactivation of trading on margin
Coinbase began ending its margin trading service on November 25th. The margin trading service will be completely disabled in December when the remaining margin positions expire.
Many believe Coinbase’s decision to terminate this service is due to the leadership of the CFTC. Given the guidance, it appeared that Coinbase was bound to run into the same hurdle as Bitfinex, which in 2016 settled with the CFTC for $ 75,000 for performing “illegal trades.”
“We believe clear and common sense rules are needed for margin lending products to protect and provide peace of mind to US customers,” said Paul Grewal, Coinbase’s Chief Legal Officer, in the official announcement. “We look forward to working closely with regulators to achieve this.”
That said, the regulatory landscape appears to be the reason Coinbase has decided to disable its service. However, Coinbase looks confident that they will have clarity on the matter in the future, which could mean they will restore margin trading in the future.
A new tax form
In Coinbase’s second announcement, they informed their users that they will no longer release the problematic 1099-k when it comes time to declare taxes. Instead, Coinbase will issue a 1099-misc to any user who “has received $ 600 or more in digital currency from Coinbase Earn, USDC Rewards and / or Staking in 2020 and is subject to US taxes.”
This update comes just days after a Coinbase user announced they received a CP2000 warning from the IRS that said they underestimated their 2018 earnings from trading on Coinbase. The user accurately reported his taxes, however, the IRS felt he made a mistake because the 1099-k form tarnished his true earnings, which was actually a $ 2,000 loss. This is because 1099-k does not represent any gain or loss to be reported to the IRS; reports only the gross proceeds of all transactions carried out.
To address this issue, Coinbase will be rolling out 1099-misc forms to its users who have received over $ 600 from specific businesses this year. However, it is unclear whether people who benefited or lost from trading on Coinbase during the fiscal year will also receive a 1099-misc form.
Although tax experts believe 1099-misc is a step up from 1099-k, they don’t believe it’s the true solution to the problem
“Even with the new module, you’ll still need to keep track of your cost base using a tool like CoinTracker, She said Shehan Chandrasekera, Head of Tax Strategy at Cointracker. “Unfortunately, neither 1099-MISC nor 1099-K reports your cost base. To correctly calculate your crypto taxes, you need to keep track of the cost base. “
See also: CoinGeek Live panel on The Future of Exchanges & Trading in a Tokenized World
New to Bitcoin? Check out CoinGeek Bitcoin for beginners section, the ultimate resource guide to learn more about Bitcoin, as originally intended by Satoshi Nakamoto, and blockchain.
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