Crypto 1099s: Complete Tax Season Guide 2023 | CoinLedger (2024)

Did you receive a Form 1099 from your cryptocurrency exchange or platform?

Form 1099 is designed to report taxable income to you, the taxpayer, and to the IRS. Unfortunately, these forms can often be filled with incomplete and inaccurate information and make tax season even more stressful.

In this guide, we’ll break down everything you need to know about Form 1099 as it relates to cryptocurrencies and digital assets. By the time you’re finished reading, you’ll learn how 1099s are reported to the IRS and how you can use the information from Form 1099 to complete your tax return.

Do I have to report cryptocurrency on my taxes?

Yes. Cryptocurrency is considered a form of property by the IRS and is subject to capital gains tax upon disposal and ordinary income tax when earned.

Remember, when major exchanges send you a Form 1099, they file an identical copy with the IRS. If you don’t report income on your tax return from the platform that filed a 1099 on your behalf, your tax return may be flagged and you could automatically be sent Notice CP2000 about your unpaid tax liability.

For more information detailing exactly how cryptocurrency is taxed, check out our complete guide to cryptocurrency taxes.

What is Form 1099?

1099 forms are designed to report non-employment-related income to the IRS (income you receive outside of your job).

While there are more than twenty types of 1099 forms, in this article we’ll focus on the most common three issued by cryptocurrency platforms: Form 1099-MISC, Form 1099-B, and Form 1099-K.

How do I get a cryptocurrency 1099 form?

In the past, there hasn’t been explicit guidance on whether cryptocurrency exchanges are required to provide 1099 forms to customers.

As a result, there’s very little consistency in terms of 1099 reporting between exchanges. Different exchanges report different forms, and some don’t report at all.

This is likely to change due to the passage of the American infrastructure bill. In the future, all cryptocurrency exchanges will be required to provide customers and the IRS with 1099-B forms. However, this may cause additional tax reporting problems due to cryptocurrency’s unique properties (more on this later).

What is Form 1099-MISC?

Form 1099-MISC is designed to report ‘miscellaneous’ income to taxpayers and the IRS. This form is typically used by cryptocurrency exchanges to report interest, referral, and staking income to the IRS.

In most cases, exchanges choose to send Form 1099-MISC when a customer has earned at least $600 of income.

Form 1099-MISC does not contain information about cryptocurrency capital gains and losses.

Which exchanges send Form 1099-MISC to customers?

• Binance.US
• BlockFi
• Coinbase
• Gemini
• Kraken
• Venmo
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What is Form 1099-K?

Form 1099-K is a form designed to help payment settlement networks report customer transactions to the IRS.

It’s important to note that this form was not designed to be used by cryptocurrency exchanges. Form 1099-K shows the gross volume of all of your transactions with a given exchange — whether or not they are taxable.

In the past, the IRS has issued thousands of warning letters to crypto investors who had filed their taxes accurately because Form 1099-K erroneously showed large amounts of unpaid tax liability.

In recent years, cryptocurrency exchanges like Gemini and Coinbase have stopped issuing Form 1099-K because of the confusion they cause.

Prior to 2022, certain cryptocurrency exchanges issued Form 1099-K to customers with at least $20,000 in transaction volume and at least 200 transactions.

Starting in the 2022 tax year, the threshold for 1099-K is lowering. Payment networks will be required to issue Form 1099-K if customers have at least $600 in transaction volume and any number of transactions. It remains to be seen whether cryptocurrency exchanges will follow suit.

Which exchanges send Form 1099-K to customers?

• Crypto.com
• eToro USA
• Venmo
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What is Form 1099-B?

Form 1099-B is designed to report capital gains and losses. Form 1099-B contains information such as your cost basis and gross proceeds for disposals of property, as well as the date you bought and disposed of your assets.

Does Coinbase issue Form 1099-B?

At this time, major exchanges are not required to issue Form 1099-B (though this will change due to the passage of the American infrastructure bill). While Coinbase currently does not provide this form, other exchanges choose to issue it to customers and the IRS.

For more information, check out our article: Does Coinbase Report to the IRS?
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Which exchanges send Form 1099-B to customers?

• BlockFi
• Cash App
• eToro USA
• Robinhood
• Uphold
  ‍
  

How will mandatory 1099-B forms impact tax reporting?

As discussed earlier, the 2021 American infrastructure bill will make it mandatory for all cryptocurrency exchanges that are considered “brokers” to provide 1099-B forms.

While 1099-B reporting is already mandatory for stockbrokers, there are potential issues that may arise for ‘crypto brokers’ due to cryptocurrency’s unique properties. Unlike equities, cryptocurrencies are designed to be transferable and interoperable. This means that 1099-B forms issued by crypto exchanges may contain incomplete/inaccurate information.

For example, consider the scenario pictured below.

In this example, David should have $0 of capital gain. However, because Gemini does not have information about David’s cost basis, it will likely report the transaction on a 1099-B as follows:

Gross Proceeds: $10,000

Cost Basis: UNKNOWN

If the IRS scrutinizes the transaction, David will need to prove that he bought his Ethereum for $10,000. Otherwise, he may be on the hook for $10,000 of capital gains.

In a case like this, cryptocurrency tax software like CoinLedger can help.

With the platform, you’ll be able to aggregate your transactions from all of your wallets and keep a complete record of all of your taxable events. Our Audit Trail Report records all the numbers used to calculate your trading gains and losses and can help you track all of your crypto transactions across different platforms.

What should I do if I see a different fair market value on my 1099 forms?

Occasionally, you might see that the income reported on your Form 1099 is slightly different than your own calculation. This difference is likely due to the several different markets used to price cryptocurrencies.

In these cases, it’s recommended that you report the fair market value that’s stated on your Form 1099 on your tax return since this is what has been reported to the IRS.

How do I report transactions on Form 1099 on my tax return?

If you’ve received a Form 1099, it’s important to accurately report your cryptocurrency transactions on your taxes to avoid IRS scrutiny.

Remember, Form 1099 is not an “entry form”, meaning you don’t actually include it with your tax return. Instead, you use the information on the form to complete the relevant portion of your tax return.

The gains and losses reported on a 1099-B should be included on Form 8949 of your tax return. This form reports your total capital gains and losses from all of your investments. Once this form is complete, your net gain or loss should be reported on Schedule D.

The cryptocurrency income (staking, etc.) that’s reported on a 1099-MISC should be reported on Schedule 1, Schedule B, or Schedule C of your tax return depending on the specifics of your situation.

We know all of this can get confusing. For more information, check out our step-by-step guide to reporting your cryptocurrency taxes.

Simplify the tax reporting process

Trying to file your tax return manually can be overwhelming. CoinLedger can help simplify the process.

With CoinLedger, you can automatically import transactions from Coinbase, Gemini, Kraken, and dozens more. Once you’re done, you can generate completed tax forms like Form 8949 with the click of a button.

Get started with a free preview report today.