In prior years, Form 1099-K has caused significant confusion amongst crypto investors — and has even led the IRS to send out thousands of warning letters to taxpayers suspected of noncompliance.
If you received a Form 1099-K this year, you might be wondering whether the numbers on the form are accurate — and whether you can use the information on the form to file your tax return.
In this guide, we’ll answer all the questions you may have about Form 1099-K. We’ll also break down a simple method that can help you accurately report your cryptocurrency income on your tax return.
How is cryptocurrency taxed?
The IRS treats cryptocurrency as property. This means that cryptocurrencies like Bitcoin, Ethereum, XRP, and others must be treated like other forms of property (stocks, gold, real-estate) for tax purposes.
Just like with other forms of property, you incur capital gains or losses when you dispose of your cryptocurrency and recognize income when you earn crypto.
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 my exchange 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. It is not an "entry" document, meaning you don't need to attach or "include" it in your tax return.
Certain cryptocurrency exchanges (Crypto.com, eToroUSA, etc.) will send you a 1099-K if you have more than 200 transactions with more than $20,000 in volume.
For example, if you made 250 trades on Crypto.com and all of these trades add up to over $20,000 in volume when summed together, you will receive a 1099-K.
It’s important to remember that Form 1099-K was designed for payment companies, not cryptocurrency exchanges. As a result, the form shows your gross transaction volume rather than taxable gains and losses.
Why is my Form 1099-K wrong?
The number that’s reported on Form 1099-K may be significantly higher than your tax liability. Don’t be alarmed — this number does not represent any gains or losses you may need to report to the IRS, it simply represents your gross transaction volume.
In addition, it’s important to remember that information on 1099 forms may be inaccurate if you’ve ever transferred cryptocurrency into or out of an exchange. In cases like these, your form may contain inaccurate or incomplete information about your cost basis.
You can calculate your capital gains and losses based on how the price of your crypto has changed since you originally received it. Here’s an infographic that can help you better understand how to calculate and report capital gains and losses.
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Why did Coinbase stop issuing Form 1099-K?
In previous tax years, Coinbase issued Form 1099-K to customers. However, Coinbase stopped issuing the form after 2020.
Because Form 1099-K shows gross transaction volume instead of capital gains and losses, thousands of Coinbase customers who accurately filed their tax returns received CP2000 warning letters from the IRS warning them about their unpaid tax liability.
For more information, read our guide: Why Coinbase Stopped Issuing Form 1099-K.
Are cryptocurrency exchanges required to send 1099 forms?
At this time, there is no clear guidance on which 1099 forms exchanges are explicitly required to issue to their customers. While exchanges like Crypto.com send 1099-K to customers, other exchanges choose to send other 1099 forms.
Due to the American infrastructure bill, all exchanges operating within the U.S. will be required to send Form 1099-B beginning in the 2023 tax year. Unlike Form 1099-K, Form 1099-B is designed to report capital gains and losses. However, transfers into and out of exchanges will continue to cause inaccuracies within these forms.
For more information, check out our complete guide to cryptocurrency 1099 forms.
Frequently asked questions
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