Tax documents for crypto
Lesson in Course: Crypto (beginner, 7min)
Do we need to pay taxes if we make money investing in crypto?
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.
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.
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.
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.
- Robinhood (not an exchange but a broker)
- itBit
- Cash App
- Uphold
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.
- Gemini
- Bitstamp
- eToro
- Binance US
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.
- 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
Brokers and barter exchanges typically use form 1099-B to report gains on capital assets sold or exchanged on behalf of clients.
A 1099-K tax form reports the total value of crypto that we traded on an exchange for the year.
Brokerages and exchanges use form 1099-MISC to report miscellaneous income to the IRS.