Cryptocurrency Trading: How to Report on Tax Return Through Brokerage (Robinhood) & Direct (Coinbase)
Reporting differs based on source: directly through exchange or through brokerage
When trading cryptocurrency, the provided reporting differs based on the source of the crypto. One may buy cryptocurrency directly through an exchange (eg coinbase) or through a brokerage (eg robinhood).
Purchased directly through exchange - requires more manual work to organize
If purchased directly, then the burden for summarizing is placed on the client / their accountant. This takes the form of FIFO/LIFO/Average cost valuation methods, and may involve more onerous, time-consuming organization.
Coinbase can generate ad hoc transaction reports, showing crypto purchases and sales.
A client with hundreds of transactions can expect spending hours sorting through to determine cost basis for each sale.
Further complicating the issue is that should clients send cryptocurrency (eg for payment), this is also a reportable event, but not one to which even coinbase has access should the crypto have been sent to a wallet instead of kept on the exchange.
Sorting these transactions can take hours and can be done either by the taxpayer or they can hire their accountant to do so (hourly fee).
Purchase of cryptocurrency through exchange - summary provided by exchange
For purchases of cryptocurrency through a brokerage, the burden of summarizing the translations is handled by the brokerage. Often, the taxpayer does not own cryptocurrency directly but is investing in an ETF linked to the value of the crypto on the open market. In particular, we have seen Robinhood provide summary transactions details, like any other 1099-B. In this case, traditional reporting is all that's necessary.