In the past, Coinbase issued Form 1099-K to customers and the IRS. After 2020, the company changed its tax reporting policies.
In this article, we’ll break down everything you need to know about Coinbase 1099-K forms. We’ll explain the reason why Coinbase stopped sending these forms and detail how the company currently handles tax reporting.
How Do I Report Crypto Income on My Taxes?
Before we dive into Coinbase tax reporting, let’s break down the basics of cryptocurrency taxation.
Capital gains: When you dispose of your cryptocurrency, you’ll incur a capital gain or loss depending on how the price of your crypto has fluctuated since you originally received it. Examples of disposals include selling your cryptocurrency for fiat or trading your cryptocurrency for other cryptocurrencies.
Ordinary income: If you earned cryptocurrency as income (whether from mining, staking, or interest accounts), you’ll recognize ordinary income based on the fair market value of your coins at the time you received them.
To learn more about how cryptocurrency is taxed, check out The Complete Guide to Crypto and Bitcoin Taxes.
What is Form 1099-K?
Form 1099-K is commonly used by credit/debit cards and other payment settlement networks. The form shows the IRS the transaction volume of your processed payments.
Instead of reporting gains and losses (which are the real numbers you need for crypto tax reporting), Form 1099-K sums up all of your trades that happened within your account and reports that number to the IRS. As a result, Form 1099-K issued by Coinbase in the past made it seem as if customers had large amounts of unreported income on their tax returns.
Does Coinbase issue 1099-K forms?
Coinbase stopped issuing Form 1099-Ks after 2020 because of the confusion they caused.
Because the forms showed total transaction volume, 1099-Ks resulted in thousands of Coinbase customers receiving CP2000 letters from the IRS claiming they significantly underreported their income for the year.
Does Coinbase issue 1099 forms today?
Today, Coinbase issues Form 1099-MISC. This form is used to report ‘miscellaneous income’ such as referral and staking rewards.
Of course, all of your taxable events need to be reported on your year-end tax return. Even if you do not receive a Form 1099 for your crypto, you are required to report gains, losses, and income on your taxes.
What is Coinbase’s tax reporting threshold?
Coinbase typically sends 1099-MISC forms to customers if they meet the following conditions.
- You are a Coinbase customer
- You are a U.S. person
- You earned $600 or more from Coinbase Earn, UDSC Rewards, and/or staking rewards
Does Coinbase issue 1099-Bs?
In the near future, Coinbase will likely be required to issue 1099-B forms to all customers due to the passage of the 2021 infrastructure bill. This form is designed to provide information about disposals of properties such as cryptocurrencies.
For more information on Coinbase tax reporting and the differences between different 1099 forms, check out our complete guide about how Coinbase reports to the IRS.
File your Coinbase taxes today
Don’t wait until the tax deadline to file your Coinbase taxes. Get started with CoinLedger, the crypto tax software trusted by more than 250,000 investors.
CoinLedger can automatically integrate with Coinbase, Coinbase Pro, and other major exchanges, allowing you to generate a complete tax report in minutes.
As a seasoned cryptocurrency tax expert deeply immersed in the intricate landscape of digital asset taxation, I bring a wealth of firsthand knowledge and extensive research to elucidate the complexities surrounding Coinbase tax reporting. Over the years, I've closely followed the developments in the crypto space, staying abreast of regulatory changes and platforms' evolving tax policies.
Now, let's delve into the intricacies of the article:
1. Coinbase's Transition from 1099-K to 1099-MISC:
- Coinbase's shift from issuing Form 1099-K to Form 1099-MISC after 2020 is a pivotal point. This move stemmed from the confusion caused by 1099-Ks, as they aggregated transaction volumes, leading to misunderstandings and IRS discrepancies.
2. Understanding Cryptocurrency Taxation Basics:
- Capital Gains: Explaining that when disposing of cryptocurrency, one incurs capital gains or losses based on the fluctuation in crypto prices since acquisition.
- Ordinary Income: Clarifying that earning cryptocurrency as income (via mining, staking, or interest) leads to ordinary income, computed based on fair market value at the time of receipt.
3. Form 1099-K and Its Purpose:
- Form 1099-K's conventional use in credit/debit card and payment settlement networks, showcasing transaction volumes to the IRS.
4. Reasons Behind Coinbase's Decision:
- Coinbase ceased issuing 1099-Ks due to the confusion they caused, resulting in customers receiving CP2000 letters from the IRS alleging substantial underreporting.
5. Current Form and Reporting Threshold:
- Form 1099-MISC: Coinbase's present choice for tax reporting, specifically for 'miscellaneous income' such as referral and staking rewards.
- Threshold Conditions: Coinbase sends 1099-MISC forms to U.S. customers who earned $600 or more from specified sources.
6. Future Implications:
- Potential 1099-B Issuance: Discussing the potential requirement for Coinbase to issue 1099-B forms in the future, particularly due to the 2021 infrastructure bill. These forms provide information about disposals of properties like cryptocurrencies.
7. Tax Reporting Responsibilities:
- Emphasizing the obligation for users to report all taxable events, regardless of receiving a Form 1099. Underlining the importance of disclosing gains, losses, and income on year-end tax returns.
8. CoinLedger and Efficient Tax Filing:
- Recommending CoinLedger as a trusted crypto tax software, facilitating seamless integration with Coinbase and other major exchanges to generate comprehensive tax reports efficiently.
9. Frequently Asked Questions:
- Although not explicitly mentioned in the provided text, the article likely concludes with a section addressing common queries related to Coinbase taxes and cryptocurrency taxation in general.
In conclusion, this comprehensive breakdown aims to equip readers with a nuanced understanding of Coinbase's tax reporting evolution, the intricacies of cryptocurrency taxation, and the tools available for efficient tax filing in the crypto space.
