Crypto Taxes
Crypto Taxes

Coinbase to Stop Reporting Form 1099-K to IRS and Customers

In a blog post yesterday, Coinbase officially declared that they are going to stop issuing Form 1099-K to customers. This is a great win for the crypto tax community as these 1099-K’s have been a long time source of confusion and tax reporting difficulties for crypto traders. 

The announcement came after a flurry of media and press coverage after the IRS sent out thousands of letters to Coinbase customers claiming they owed huge amounts of back taxes due to these misleading 1099-K’s. 

What Is 1099-K?

1099-K is an informational form used to report credit card transactions and third party network payments received during the year.

In the case of cryptocurrency exchanges, the gross amount of the reportable payment on Form 1099-K does not represent any gains or losses you need to report to the IRS. It solely reports the gross proceeds from all transactions you’ve made on the Coinbase network.  

This was the massive problem with this form. 

Instead of reporting gains and losses (which are the real numbers you need for crypto tax reporting), 1099-K sums up all of your trades and sells that happened within your Coinbase account and reports that number to the IRS. This makes it look like you had huge amounts of unreported income on your tax return. 

The Result

These 1099-K’s resulted in thousands of Coinbase customers receiving CP2000 letters from the IRS claiming they significantly underreported their income for the year.

Of course, these letters from the IRS were inaccurate in their claims, and Coinbase customers who received CP2000 had to clear up the confusion by sending explanatory letters and phone calls to the US tax agency. 

The entire 1099-K reporting process was a mess and caused extreme confusion for crypto investors.

Coinbase 1099 Reporting Today

Now in the coming year (2021), Coinbase will not issue Form 1099-K. They will only be reporting 1099-MISC for those who received $600 or more in cryptocurrency from Coinbase Earn, USDC Rewards, and/or Staking in 2020.

You can learn more about how Coinbase reports to the IRS here.

Of course, all of your crypto activity still needs to be reported on your year-end tax return. Even if you no longer receive a 1099-K from Coinbase, you are required to report gains, losses, and income on your taxes or face penalties if you do not.

<div id="om-eeywu2knpo981nccukze-holder"></div>

How Do Crypto Taxes Work?

The IRS treats cryptocurrencies as property for tax purposes. Just like other forms of property (i.e. stocks, bonds, real estate), you incur a tax reporting requirement when you sell, trade, or otherwise dispose of your cryptocurrency for more or less than you acquired it for. These taxes are commonly referred to as capital gains taxes.

In this sense, cryptocurrency trading looks similar to trading stocks for tax purposes.

For example, if you purchased 0.2 Bitcoin for $2,000 in May of 2018 and then sold it two months later for $3,000, you have a $1,000 capital gain. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies for all cryptocurrencies.

Alternatively, if you sold your cryptocurrency for less than you acquired it for, you can write off that capital loss to save money on your crypto taxes. 

If you earned cryptocurrency as income (whether from mining, staking, or interest accounts), that income also needs to be included with your tax return.

We dive further into everything you need to know about how cryptocurrency is taxed in our blog post, The Complete Guide to Crypto and Bitcoin Taxes.

Crypto Tax Software

Cryptocurrency Tax Software

Crypto tax software like CryptoTrader.Tax exists to automate the entire crypto tax reporting process. By integrating directly with all major exchanges and crypto platforms, you can simply connect your crypto accounts and generate your crypto tax reports with the click of a button.

You can learn more about how CryptoTrader.Tax works here.

Recently updated on
April 15, 2021
Category:
Crypto Taxes

Recommended For You

Calculate Your
Crypto Taxes

  • No obligations.
  • No credit card needed.
  • Instant tax forms.
Get Started For Free
Tax Calculator