If you were involved in cryptocurrency trading in 2022, you may receive Form 1099-K this year. But what does this form tell you, and what should you do with it? Let’s break it down together.
To make trading virtual currency more user-friendly, crypto exchanges (such as Coinbase, Gemini, Kraken, etc.) have allowed their users to transact through third-party payment networks.
What are third-party payment networks?
Third-party payment networks are companies that process credit card and other online payment transactions for online retailers (or cryptocurrency exchanges, in this case). Some examples are Paypal, Venmo, Google Pay, and Apple Pay.
Why did I receive a 1099-K from my cryptocurrency exchange for cryptocurrency trading?
Third-party payment networks and online retailers use Form 1099-K to report transactions for your processed payments. Not all cryptocurrency exchanges use Form 1099-K (they may issue other 1099 forms instead), but some do.
In the past, the IRS only required third-party payment networks to report transactions to the IRS if you had at least 200 transactions totaling at least $20,000 in a year. This was scheduled to change in 2022, but the IRS delayed the changes by a year.
Starting in tax year 2023, third-party payment platforms are required to report transactions to the IRS if their transactions total $600 or more, regardless of the number of transactions made. If, for example, you had a cryptocurrency sale totaling $600, you could receive a 1099-K for that transaction in 2023.
It’s unclear if more cryptocurrency exchanges will start sending out 1099-Ks, but if you received one for your cryptocurrency transactions this year or expect to receive one next year, keep reading!
Do I need to report my crypto income to the IRS?
Yes, although the way to do it differs from a typical W-2.
The IRS considers cryptocurrencies to be a digital asset and treats them as a form of property. If you sell virtual currency for a profit, you will report the gain as a capital gain. If you received compensation with cryptocurrency, it is considered ordinary income and is taxed as such. In this case, you would report the income as “other income” on your federal income tax return.
It is important to note that Form 1099-K does not report your crypto gains and losses, it is simply a summary of all your crypto transactions. This means that not all transactions reported on the 1099-K are necessarily taxable, which can make the form extremely confusing, especially for new cryptocurrency traders.
How do I report my 1099-K for crypto?
Since 1099 forms are purely informational, you don’t need to include them with your federal tax return, but you should use any 1099 to correctly report the relevant income.
You may have other tax forms related to cryptocurrency trading, such as a 1099-MISC or 1099-B form. If applicable, you can use these forms in conjunction with Form 1099-K to correctly report your crypto gains or losses.
tax law® strives to make filing crypto taxes as painless as possible. As you go through the electronic filing process with us, you will see a section called “Less Common Income.” Once you check this box and select the type of income you received, you will see a section about cryptocurrencies:
On this screen, you can check all the boxes that apply to your crypto transactions for the current fiscal year, including profit, loss, crypto interest, mining income, etc. We will ask you detailed questions about each category to help you correctly report your crypto income. You will also be able to import a CSV of your transactions, if you have one, or do it manually:
Once you’ve gone through our crypto reporting section, you should be done reporting your crypto income!
main conclusions
If you receive an unexpected Form 1099-K from your cryptocurrency exchange this year, make sure you know what it’s for and how to use it. Filing with TaxAct makes the process easy – we’ll guide you step by step so you can file your return quickly and safely.
