You are required to receive one of two tax forms: Form 1099-K and Form 1099-MISC. Regardless if you’re a freelancer, entrepreneur, cryptocurrency trader, etc.,you aren’t exempt from reporting your income to the Internal Revenue Service (IRS) every year.
What is the 1099-K?
Form 1099-K, or the Payment Card and Third Party Network Transactions, is given to merchants, retailers, and third parties who accept credit card, debit card, and pre-paid card payments from processors such as VISA, PayPal, and Mastercard. The Form details the total amount of card revenue that they earned, but only if they processed a minimum of 200 card transactions and made at least $20,000 from those transactions during the year.
When you receive Form 1099-K from your third-party processor, you must translate its information and reflect the accurate income and expenses when you file your taxes using Schedule SE on Form 1040 or Form 1040-SR.
What is the 1099-MISC?
Form 1099-MISC is designed for independent contractors and self-employed individuals who have received at least $600 in wages. If you earn less than that amount, you might not receive Form 1099-MISC, but you will still have to report your income if your annual net earnings exceed $400.
However, if you provided services to a private individual, they aren’t obligated to send you Form 1099-MISC. For example, if you provided pool cleaning services for someone’s private residence, he/she will not have to send you Form 1099-MISC. On the other hand, if you design digital ads for a business, they will have to send you Form 1099-MISC if you received more than $600 for your work.
Once you receive Form 1099-MISC, you must file your taxes on Schedule C. Using Form 1099-MISC, you will be able to calculate your total earnings from self-employment, as well as identify the deductions that you qualify for.
What Form should cryptocurrency exchanges send?
Cryptocurrency exchanges such as Coinbase use Form 1099-K to report their customers’ income to the IRS. According to the IRS, Form 1099-K reflects “third-party network transactions” which refers to transactions performed through a third-party network such as PayPal and Square. Cryptocurrency exchanges are required to submit the form to the following:
- Clients/customers who made at least $20,000 in payments during the year
- The Internal Revenue Service (IRS)
When cryptocurrency traders receive Form 1099-K from their cryptocurrency exchanges, this acts as a guarantee that the IRS is kept informed of their digital transactions.
Was your income reported twice?
In rare instances, income can be reported twice on both Form 1099-K and Form 1099-MISC. Let’s say that you offer cleaning services for a local business, earn more than $600 annually, and accept credit card payments. You should receive Form 1099-MISC from your employer, but you should also get Form 1099-K from the third-party network that is processing your payments. When this happens, you can request a corrected Form 1099-MISC to avoid paying taxes for the same amount of money twice.
Depending on your type of work, it’s important to file your taxes as accurately as possible — avoiding your taxes won’t do any good, as the IRS takes the reporting of annual income very seriously. If you’re unsure about your taxes, you can always visit the IRS website for clarifications.