Forms 1099 are tax forms similar to W-2s in that they report income earned by individual taxpayers. These forms are commonly used to report income from activities other than a job, such as non-employee (contractor) compensation, rental income, investment income and capital gains and losses.
A form 1099 is issued by the paying organization to the payee – a contractor could get a 1099 from a company he provided services to just like an investor would get a 1099 for investment income and gains on a traditional broker like Fidelity. Individual taxpayers should be aware that the payer also files copies of any 1099s issued with the Internal Revenue Service (IRS) and state tax authorities, so you should make sure to report 1099s on your tax return. Penalties and fines may apply if this income is not reported. The forms are usually mailed to you by the end of January or early February, and you must use them when you prepare your taxes. As with any other tax forms, you should maintain accurate records of all 1099 forms received.
The regulations for 1099 reporting for crypto are still under development, as you may have seen rumors around the web that the IRS is working on a new Form 1099-DA (for digital assets). These reporting requirements are expected to be effective January 2024 for the 2024 tax year. That does not mean that you will not see any 1099s related to your crypto income before then. The following guide will help you report each type of crypto Form 1099 for the tax year 2023 correctly.
Form 1099-MISC – Crypto Income
A Form 1099-MISC generally reports miscellaneous income such as royalties, rents and “other”. This “other” is used for various types of miscellaneous income such as staking, interest on crypto deposits and other types of “miscellaneous” crypto income from centralized exchanges.
You will only receive this form if you had over $600 of income on that exchange. Keep in mind that not receiving a 1099-MISC does not indicate that you have no taxable income to report. With or without a 1099-MISC, any of this miscellaneous type of crypto income should be reported on your tax return. This is true whether the income is generated on a centralized exchange or a decentralized finance platform.
Since the government matches data, you should report your form 1099-MISC exactly as provided to you. In order to ensure that you do not double-report this income (since this will also be part of your accointing), you should subtract the income already reported from any forms 1099-MISC from your total taxable crypto income reported through accointing.
Joe has accounts with Coinbase and Kraken, and also has a MetaMask wallet. He earns rewards on crypto deposits on Coinbase and stakes some coins on Kraken. Assume that he receives: $1,000 income from Coinbase, $800 staking rewards from Kraken and $500 in airdrops income through his MetaMask. Joe’s accointing tax report will show a total of $2,300 of taxable crypto income. Because of the dollar amounts, Joe will likely receive a 1099-MISC from Coinbase and Kraken. Therefore he should report, in his other income section:
Crypto income – 1099-MISC Coinbase $1,000
Crypto income – 1099-MISC Kraken $ 800
Other Airdrops $ 500
Total Other Income – to Schedule 1, line 8z $2,300
When entering your 1099-MISC, you will often find questions such as “was this 1099-MISC related to an activity for profit” or “was this similar to the work you do in your main job?” Oftentimes, compensation related to a trade or business that is considered self-employment is reported on Form 1099-MISC. Whenever you are self-employed, you must pay self-employment taxes in addition to your regular income tax. This only applies if the income you received is considered self-employment income, such as compensation received for providing services as an independent contractor. In the majority of cases, crypto income reported on a Form 1099-MISC will not be subject to self-employment taxes, therefore when you encounter these types of questions, you should answer as “not an activity done for profit” or a similar option.
Keep in mind that any crypto income reported on a 1099-MISC will be subject to capital gains tax when you dispose of that crypto. No, you will not pay double tax as the amount of income you pay tax on (based on your 1099-MISC or accointing tax report) becomes your tax basis of these coins. Therefore you should track this income with our tools as soon as received, even if reported on a 1099-MISC, as this will allow you to avoid any double taxation in the future.
Form 1099-B – Crypto Gains
1099-Bs in General
A form 1099-B is used to report capital gains or losses from sales or trades of stocks, commodities, and other securities. These forms are provided by your broker, such as Fidelity or RobinHood.
This form will include the information required to report your gain or loss on your tax return, such as the date of sale, the number of shares sold, the sales price, cost basis, and gain or loss. You must report these forms diligently as capital gains are taxable, and capital losses should be used to offset any other capital gains and reduce your taxes.
It is critical to remember that you are responsible for reporting all taxable capital gains, even if you do not receive a 1099-B form. It is also your responsibility to have the correct cost basis in cases where the basis may be unknown.
As mentioned above, the 1099-DA won’t be seen by taxpayers for a couple of years, but that doesn’t mean that you won’t see any crypto gains or losses reported on Forms 1099-Bs. Some exchanges, such as Bittrex, Uphold, Robinhood and Cash App will issue 1099-Bs to US taxpayers. If you do receive a 1099-B, you must report as issued since the government will also receive a copy. If your 1099-B is not accurate, which is highly likely due to the complexity that transferring crypto creates, there are specific ways in which you can correct the reported amount. Further, you will need to ensure that you are not double reporting these gains as your accointing tax report will also consider these trades. In fact, you can use accointing to verify the correct tax basis and avoid paying taxes on higher gains.
1099-Bs from closed exchanges (those that do not allow you to transfer crypto in or out of the exchange, such as Robinhood), are generally accurate. Since these exchanges do not allow you to deposit or withdraw your crypto, they have the full picture of your transactions and are able to provide accurate tax information.
A 1099-B from an exchange where you transferred crypto in or out of, could be incomplete in providing you the correct tax basis. You will also need to track this information for transferred crypto as those gains will impact your basis. If you don’t want to overestimate your gains, verify your tax basis and gains with accointing.
There are two ways in which you can make adjustments to a 1099-B when reporting on your Form 8949. Pick whichever way best explains your situation.
Adjusting your 1099-B
- If your 1099-B indicates to report on Part I with box A checked or Part II with box D checked, then report as issued and make any adjustments on column G of Form 8949 and use code “B” for column F.
- If your 1099-B indicates to report on Part I with box B checked or Part II with box E checked, then enter the correct basis in column E, enter -0- in column G and use code “B” for column F.
Your tax tool of choice should have options for making the needed adjustments when entering a 1099-B.
If you’re not sure what to do with the information on a 1099-B, you should consult a tax professional for guidance.
1099-K in General
Similarly to the other 1099 forms we’ve looked at, the 1099-K form reports information related to any payment card and third-party network transactions that you may have received during the year.
When you receive payments through credit cards, debit cards, PayPal, or other similar means, the payment settlement entities such as the merchant acquirers or the payment facilitators are required to report the transaction to the IRS and to you on a 1099-K form. This form will include information such as the total amount of payments received, the number of transactions, and the type of payments received.
It is important to note that the 1099-K form reports the total gross amount of payments, but not the net amount after deducting expenses and cost of goods sold, which is the cost of producing and selling the products or services . It is important to also keep in mind that you are responsible for reporting all of your payment card transactions on your tax return, even if you do not receive a 1099-K form. If you’re not sure what to do with the information on a 1099-K, you should consult a tax professional for guidance.
The American Rescue Plan of 2021 has increased the reporting threshold for third-party settlement organizations (TPSOs) like payment apps and online platforms. TPSOs are now required to report transactions that exceed $600 per year, a change from the previous threshold of over 200 transactions per year and an excess of $20,000. However, the IRS announced that the calendar year 2022 will be treated as a transition year for this reduced reporting threshold, so for this year, TPSOs will only be required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions. It’s important to note that this law does not intend to track personal transactions such as paying for a car ride or meal with friends, giving gifts, or paying a family member for a household bill.
If you have received a form 1099-K from a crypto exchange, it’s important to understand that this form is not reporting your gains or losses. As mentioned above, this form is meant to report credit card or other payment transactions, not gains and losses from crypto trading. The information reported on the form will not reflect your gains and losses. This does indicate that the exchange has also issued a copy to the tax authorities, so they will be expecting you to report your crypto transactions. Be sure to accurately report all your trades and keep all your documentation in order.
So why have some exchanges used this form to report cryptocurrency transactions? The lack of guidance in the industry has led some exchanges to choose to issue this form, rather than nothing at all. However, it’s important to note that this form is essentially useless when it comes to reporting your crypto trades.
For additional information on filing your crypto taxes, including extending your tax return, attachments and filing with multiple tax tools, check out our Crypto Tax Filing Guide 2023.
The information contained in this guide, including any supplemental materials, is for general information purposes and does not constitute financial, investment, legal or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.