Do you own cryptocurrency on Robinhood? Filing your taxes will soon become get significantly more complicated.
Robinhood has become one of the most popular platforms amongst the younger demographic for buying, selling, and investing in a variety of assets. Included in these offerings is the ability to invest in cryptocurrencies.
In this article, we’ll break down how you can file your Robinhood crypto taxes (and how the process will change with the release of Robinhood wallets).
Table of Contents
Crypto taxes 101
In most countries, cryptocurrencies like bitcoin are treated as property for tax purposes, not as currency. Just like other forms of property—stocks, bonds, real estate—you incur a tax reporting requirement when you sell, trade, or otherwise dispose of your cryptocurrency for more or less than you acquired it for.
As a result, cryptocurrency trading looks similar to stock trading for tax purposes.
The tax rates you pay on cryptocurrency fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain.
For more information on how cryptocurrency taxes, check out our Ultimate Guide To Cryptocurrency Taxes.
Why is Robinhood different?
Because Robinhood is not a native crypto company, all ‘crypto transactions’ currently take place within the Robinhood platform. In other words, you cannot send the BTC you buy from Robinhood to your own external wallet at this time. You also cannot send BTC from your external wallet into your Robinhood account.
While many would argue that this is “anti-crypto”, it does allow Robinhood to provide necessary gains and losses tax forms to their users at the end of the year.
Unlike ‘native’ cryptocurrency exchanges such as Coinbase or Gemini, Robinhood knows exactly how much you gained or lost from your crypto investments when you sell because every single transaction—buy, sell, or other— happened within its walls.
Most crypto exchanges do not have this ability. You can send crypto into Coinbase or out of Coinbase at any time. When this happens, Coinbase loses the ability to give you complete gains and losses reports. We detail this problem in extreme depth in our blog post here: Why cryptocurrency exchanges can’t give users accurate tax reports.
Soon, Robinhood may face the same tax reporting problems as other crypto exchanges. Robinhood recently announced that it will be releasing cryptocurrency wallets. Once this feature is released, filing taxes will become more complicated for Robinhood users as transaction data can now be splintered across a variety of crypto platforms (more on this later in the article).
Currently, Robinhood allows users to download a complete form (1099-B) showing investors their complete capital gains and losses for the year.
You can download your 1099-B right from your Robinhood account. Similar to other types of tax documents received at year-end (W2 etc), you can import this 1099-B that you receive from Robinhood into tax filing software such as TurboTax or give it directly to your tax professional to file on your behalf.
At this time, you do not need to import this 1099-B into specific crypto tax software like CoinLedger. Again, this is because all of your gains, losses, cost basis, and proceeds are already completely listed out on the 1099-B that you receive from Robinhood. There is no need to include this information twice on your tax return.
What if I use other exchanges in addition to Robinhood?
If you use other traditional cryptocurrency exchanges in addition to Robinhood, you will need to aggregate those transactions from those other exchanges to create your necessary gains and losses tax forms.
As stated earlier, native cryptocurrency exchanges often have trouble providing these forms to users. Luckily there is an easier way. You can use cryptocurrency tax software like CoinLedger to generate necessary tax reports with the click of a button.
At this time, you should not include Robinhood trades within these aggregated reports. Because Robinhood is currently a closed ecosystem for cryptocurrency, it should be handled separately.
At this time, if you are using TurboTax or another filing software, you should import your TurboTax CSV that CoinLedger exports as well as your 1099-B that Robinhood exports into your account. When you upload both of these, all of your crypto transactions will be included within your tax return. No data will be double-counted.
The upcoming release of Robinhood wallets
On September 22, 2021, Robinhood announced that it would soon be releasing cryptocurrency wallets that give users the ability to send and receive crypto from outside the platform.
Once wallets are introduced, tax reporting will likely become more difficult for Robinhood users. After all, if you sell cryptocurrency on Robinhood that was originally purchased on another exchange, Robinhood will not know your original cost basis and will not be able to calculate your capital gains.
Since the platform will no longer be able to generate a complete 1099-B form with all of your cost basis information, Robinhood users will likely need to use a crypto tax software like CoinLedger to accurately report taxes.
Get started with CoinLedger
CoinLedger is designed to make filing your tax returns feel stress-free. The platform integrates with exchanges like Gemini, Coinbase, and Kraken to automatically import your cryptocurrency transactions.
Sign up for a free account today.
Disclaimer: This guide is provided for informational purposes only. It is not intended to substitute tax, audit, accounting, investment, financial, nor legal advice.
Find more: Robin hood crypto – Krypto-NFTs