1099s are forms that various companies and individuals prepare that report income paid that is not reported on traditional W-2 wage statements. 1099s are sent to both the IRS and the person that received the payment. There are 20 different types of 1099s – depending on the type of income being reported. For a deep dive into many of the 1099 and the information included in them, check out this link. This tutorial talks about 1099s sent to you from a cryptocurrency exchange and how they should be reported. This is not to be considered tax advice but rather general information.
First, you should have a little background about how income from crypto is reported in your tax return. Since crypto is currently classified as a property by the IRS, selling crypto results in capital gains or losses. Capital gains and losses are reported on Form 8949 of your tax return.
Before they go on your tax return, capital gains and losses are reported by banks, securities brokers, and other financial institutions on a 1099B form.
The 1099B, like all 1099s, is sent to both the IRS and the person who received the income. The 1099B has the sale price, date of each transaction, and purchase price – the basis. The difference between the purchase price or basis and the sales price (or proceeds) is the net capital gain or loss. Depending on the date of the purchase – the profit or loss will be either long-term or short-term.
All this information on the 1099B is then put on an individual’s 8949 tax form, which lists all capital gains and losses – from all sources – basically consolidating all 1099-B data received from various sources and other gains/losses not reported on 1099Bs. Selling crypto is considered a sale of property and must also be reported on the 8949 – whether or not you received a 1099B. The data on the 8949 is then added up and the summary is reported on the Schedule D of your tax return.
Although Crypto sales transactions on exchanges result in capital gains or losses, most Crypto exchanges do not have the data needed to prepare an accurate 1099-B form. This is due to the nature of cryptocurrencies – they are easily transferrable and frequently moved between wallets and exchanges, so the purchase price (or basis) is often lost track of during these transfers.
A reputable preparer of 1099B s, SOVOS, recently wrote in a white paper that “Cryptocurrency exchanges don’t have the necessary cost basis information needed for 1099-B reporting for 75-100% of the assets held on theri platform.” Therefore some crypto exchanges may not provide a 1099, others will provide a 1099B without the basis price, and others may even provide a 1099K, as they did in earlier years.
That means that if you receive a 1099B from an exchange, the odds are it won’t be accurate or complete – the tax basis may be missing or reported incorrectly. Only if all your transactions for the crypto you bought and sold in that exchange were never transferred in our out – will it even be possible for a crypto exchange to calculate a complete 1099B.
This is where ACCOINTNG.com comes in.
By using ACCOINTNG.com you have all your transactions in a single place, so you can track the basis of your trades regardless of where they originated or where they are sold. The crypto tax software will track the basis between wallets and exchanges. If there is any missing data in the platform, the Review feature will warn you before you finalize your tax report – and you can either locate the data through your exchange APIs or enter it manually. It will prepare an accurate tax report without a 1099B.
If you do get a 1099B report from a crypto exchange – you should compare it to Accointing’s tax reports. We provide a report for the 2021 tax year with the capital gains and losses listed and totaled by the exchange where the crypto was sold. This information should be accurate and include the basis. If you see substantial differences in the crypto exchange 1099B from our data – you generally know there is a problem with the basis data reported by the exchange – and it is probably simply missing. It should not be hard to find where that difference is – since the 1099B from the exchange should list all the individual transactions with their basis, and you can compare that to the ACCOINTNG.com data, which also lists all the data.
There might be other more minor discrepancies because when you buy crypto coins with another crypto token, there must be a derived dollar price based on the market price of the tokens at the time of the trade. In this case, Accointing and the exchange may use slightly different prices – but this should not be a material difference. This is because the crypto tax tool gets its data from CoinMarketCap, the most reputable market data aggregator. .
One thing is essential to consider – if you do receive a 1099B from an exchange, be sure that you do not report your income twice in your tax return – once with the 1099B received from the exchange and again in ACCOINTNG.com.
Generally, you should use only the ACCOINTNG.com data – because it has all your Crypto data from all exchanges and wallets and tracks both the proceeds and the basis of all transactions. In addition, you should save the 1099Bs from your crypto exchanges as backup records in your tax file in case you ever need to show that you reported all your crypto income.
As mentioned in the past, exchanges have also used the 1099K form to report crypto capital gains and losses. However, this report shows only the gross proceeds and does not show any basis information – so again, if you receive one, you should use the ACCOINTNG.com data instead.
Regardless of which tax form you receive, make sure to retain all of these tax forms along with your ACCOINTNG.com tax report.
While at this moment we don’t know what data the IRS will be matching for crypto 1099’s (due to the issues noted above), one thing is for sure; if you receive a 1099 from any exchange, the IRS will be looking for income reported from that exchange on your Form 1040. This means that record-keeping will be critical to substantiate your basis. Remember, the IRS only has to prove gross proceeds – it is on the taxpayer to prove tax basis.
If you are staking, mining, earning interest on crypto deposits (such as on BlockFi), earning crypto through referral programs, have received an airdrop or additional coins due to a hard fork (through a centralized exchange), you may also receive 1099-INT or 1099-MISC tax forms showing income from these activities. This income should all be in your ACCOINTNG.com tax reports, and you should be careful not to report it twice. Similar to your gains or losses, you can find your income by type and exchange in your ACCOINTNG.com tax report so that you can make sure to match this and not double report.
You can read our articles and view our tutorial on how-to report other crypto income from activities like staking and mining. We hope this helps you understand any crypto 1099s you receive.