Some taxpayers may be unaware of all the federal tax reporting requirements for cryptocurrency transactions — especially when it comes to issuing and receiving a Form 1099 for 2023. If you buy something with cryptocurrency, you won't receive one. However, you may receive a Form 1099 if you receive a crypto payment.
There are several types of Form 1099. You normally receive one or more of them near the beginning of the year following the year in which you receive payment. Here's an overview of which types of this form you may receive from engaging in cryptocurrency transactions.
Several cryptocurrency exchanges report gross income from crypto rewards or staking as other income on Form 1099-MISC, "Miscellaneous Income." The form won't report individual transactions from rewards or staking, just your total income from them. You should report each transaction, as well as any other crypto transactions, on your personal tax return.
You might receive a Form 1099-K, "Payment Card and Third-Party Network Transactions," which reports the total value of crypto that you bought, sold or traded on the reporting exchange during the year. This form is commonly used by credit card companies and payment processors, such as PayPal and Venmo, to report payment transactions that they've processed for third parties.
Form 1099-K is usually sent to U.S. traders that made 200 or more transactions during a year with a volume of at least $20,000. The American Rescue Plan Act of 2021 lowered the reporting threshold to $600, but the IRS has delayed enforcing that unfavorable change. It remains to be seen whether the $600 threshold will be in effect for the 2023 tax year. If it is, it will be reflected in 2023 Forms 1099-K, which will be sent out in early 2024.
Note that the amount on the 1099-K doesn't represent your total capital gain or loss, and you don't need to include the amounts on this document on your tax return. Don't be alarmed if the number on your 1099-K is larger than expected — it represents your total trading volume. If you trade often, you may have a large trading volume but not a large net gain or loss.
Form 1099-B, "Proceeds from Broker and Barter Transactions," is mainly used by brokerage firms and barter exchanges to report capital gains and losses, but some crypto exchanges also use it. Form 1099-B reports gains and losses from individual transactions. Although each gain or loss is calculated separately, the brokerage firm will typically report consolidated numbers — for example your net short-term gain or loss amount.
The Infrastructure Investment and Jobs Act (IIJA), which became law in late 2021, expanded the definition of brokers that are required to report customer gains and losses from the sale of securities on Form 1099-B. Under the IIJA, operators of trading platforms for digital assets, such as cryptocurrency exchanges, will become subject to the same Form 1099-B reporting requirements as traditional securities brokers. The effective date for this change remains to be seen because the IRS hasn't yet issued regulations on the subject.
The IRS gets a copy of any Forms 1099 that are sent to you. So don't assume you can just fly under the radar without detection. If you fail to report crypto transactions on your tax return and get audited, you could face interest and penalties — and even criminal prosecution in extreme cases.
Contact your tax advisor for more information about Form 1099 reporting requirements for cryptocurrency transactions, along with any other questions related to the federal tax rules for this relatively new type of asset.
The Infrastructure Investment and Jobs Act of 2021 amended existing anti-money laundering laws to treat digital assets as cash for purposes of enforcing those laws. Affected businesses must use Form 8300, "Report of Cash Payments Over $10,000 Received in a Trade or Business," to report when they receive more than $10,000 in digital assets in one transaction or in multiple related transactions. To complete Form 8300, businesses must gather the name, address, taxpayer identification number and other information from the party making a payment. Failure to comply with this requirement can potentially lead to civil and criminal penalties.
As of this writing, the new requirement to file Form 8300 to report the receipt of $10,000 or more in digital assets is scheduled take effect on January 1, 2024, with the first forms due on January 15, 2024. However, it's possible that these deadlines could be postponed. Contact your tax advisor for an update.
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