Back

Tax documents for crypto

Lesson in Course: Crypto (beginner, 7min)

Do we need to pay taxes if we make money investing in crypto?

Eureka!

What it's about: Taxes reported for money made buying and selling crypto.

Why it's important: The IRS is tightening requirements to report taxes and tax evasion is illegal.

Key takeaway: Taxes can be reported on a 1099-B, 1099-MISC, or 1099-K depending on the exchange or brokerage.

Just like trading stocks, the IRS expects us to pay taxes on any gains from crypto. However, tax reporting standardization is only just starting to be defined, and it falls on us to stay organized when filing our taxes.

Benefits of using one trading platform

The decentralized nature of crypto makes tracking costs difficult for the government and us—especially if we acquired coins through a DEX or other CEXs. If we use multiple exchanges, we must track every transaction and report the income on our taxes at the end of the year. 

Tracking every transaction is a major pain

If we stick to just starting with one centralized exchange, that exchange will have all of our transactions. We can then use CoinTracker or TurboTax to file our taxes and report the income at the end of the year.

 

Tax documents

Crypto investing is still a bit like the wild west, and each exchange will report transactions slightly differently. Depending on the platform we use, we can expect a 1099-B, 1099-K, or a 1099 Misc.

What is 1099-B?

Brokers and barter exchanges typically use form 1099-B to report gains on capital assets sold or exchanged on behalf of clients.

A 1099-B form lists out every transaction, including taxable gains, for the taxable year. 

1099B lists out all transactions and costs

Since everything is listed for us, this is the easiest way for us to calculate the taxes we owe. Unfortunately, due to the challenges of tracking costs across different exchanges, not all platforms report a 1099-B.

A list of CEXs that issue 1099-B
  • Robinhood (not an exchange but a broker)
  • itBit
  • Cash App
  • Uphold
What is 1099-K?

A 1099-K tax form reports the total value of crypto that we traded on an exchange for the year.

The amount reported on a 1099-K serves as a notification to the IRS that we traded crypto and sets the expectation of taxable trading income or losses for the year. A 1099-K does not include our capital gains. We should expect to receive a 1099-K if we made 200 or more transactions, the volume of which equals $20,000 or more.

A list of CEX that issue 1099-K
  • Gemini
  • Bitstamp
  • eToro
  • Binance US
What is 1099-MISC?

Brokerages and exchanges use form 1099-MISC to report miscellaneous income to the IRS.

Some crypto exchanges, most notably Coinbase, have begun to use the 1099-MISC form to report a user's gross income from crypto rewards or staking. Like the 1099-K, Form 1099-MISC lets the IRS know we've been trading crypto, expecting us to report taxable gains or losses for the year.

Here is a list of CEX that issue 1099-MISC
  • Coinbase / Coinbase Pro
  • Celsius network

1099-MISC serves as a catch-all form, and we can receive income reported on a 1099-MISC from work. It's important to double-check the numbers are correct.

Actionable ideas

To simplify our taxes, consider using only one CEX, or use a brokerage like Robinhood or Public. Once we are more experienced or want to use DEXs for more complicated investments, we can set up CoinTracker for our taxes.

The worst thing we can do is evade taxes. It's illegal and will catch up to us whether we do it intentionally or not.

Glossary

What is 1099-B?

Brokers and barter exchanges typically use form 1099-B to report gains on capital assets sold or exchanged on behalf of clients.

What is 1099-K?

A 1099-K tax form reports the total value of crypto that we traded on an exchange for the year.

What is 1099-MISC?

Brokerages and exchanges use form 1099-MISC to report miscellaneous income to the IRS.