Coinbase, GDAX, Gemini, and other crypto exchanges started issuing 1099-K tax documents to their customers. These documents are sending crypto investors into a world of confusion and panic as they’ve seen unexpectedly large numbers on the forms. The question that everyone is asking is the question that this article addresses: What do I do with my 1099-K?
Crypto Taxes - The Basics
The IRS treats cryptocurrency as property. This means that crypto’s like Bitcoin, Ethereum, Ripple, and other alt-coins must be treated like owning other forms of property (stocks, gold, real-estate) for tax purposes. Just like with other forms of property, you are required to file your capital gains and losses with the IRS at year end. For an in-depth overview of this process, please read our guide covering the fundamentals of crypto taxes.
What is a 1099-K, and why did Coinbase send me one?
A 1099-K is an informational form to report credit card transactions and third party network payments that you have received during the year.
You should receive a 1099-K if you received payments from credit card transactions or payments from a third party network. In the case of crypto, the third party network (Coinbase, GDAX, Gemini) is required to send you a 1099-K if your payments are over $20,000 or you have over 200 transactions.
Coinbase issued you a 1099-K if you met this criteria because they are required to by tax code and law.
The gross amount of the reportable payment on your 1099-K does not include any adjustments, and it does not represent any gains or losses you may need to report the IRS. It solely reports the gross proceeds from all transactions you’ve made on the network--in this case Coinbase.
That is a lot of fancy language. Boiled down, the 1099-K shows how much you have transacted on a third party network like Coinbase. The IRS wants to know if you have a high volume or high dollar amount of transactions. This form shows them that. This 1099-K is automatically sent to the IRS, so they have an idea of your activity on third party exchanges. However, THIS IS NOT the amount that you are on the hook for your taxes. exhale
You only owe taxes on your capital gains. Or put into other words, you only owe a tax on the amount that you have gained while trading crypto. If you started with $100 of Bitcoin and you sold it for $500 after holding it for six months, you would owe taxes on that $400 gain. If you are not familiar with crypto capital gains and taxes, read our article here.
If you received a 1099-K from any exchange, you should definitely be filing your crypto activity on your taxes. If you do not, you are almost asking to be audited as the IRS already knows of your transactions.
I didn’t receive a 1099-K. Should I still report my crypto gains on my taxes?
While this can and will be debated by many folks, the answer is yes. It is required by law to report your capital gains on your crypto transactions. Every sale and every coin-to-coin crypto trade is a taxable event. These should all get reported on your 8949 form.
How do I report my crypto transactions on my taxes?
You need two forms to properly file your crypto taxes: The 8949 and the 1040 Schedule D. List all trades onto your 8949 along with the date of the trade, the date you acquired the crypto, the cost basis, your proceeds, and your gain or loss. Once you have listed every trade, total them up at the bottom, and transfer this amount to your 1040 Schedule D. Include both of these forms with your yearly tax return.
If you have a high volume of trades, it could save you time and energy to automate the entire 8949 creation by uploading your trades into CryptoTrader.Tax. Once your 8949 is complete, give this form to your tax professional or upload it into tax preparation software like TurboTax.
To recap: Coinbase sent you a 1099-K because they had to and because you had over $20,000 worth of transactions or over 200 transactions. The IRS was sent a copy of this 1099, so they are aware of your activity (but do not worry because this is not the amount you owe in taxes!). To properly report your taxes on your trading activity, complete the 8949 and 1040 schedule D. The IRS will look at your 8949 and your 1099-K together to determine if you are accurately filing your crypto taxes.