What to do with your 1099-K from Coinbase, Gemini, or GDAX for crypto taxes
Coinbase, GDAX, Gemini, and other crypto exchanges started issuing 1099-K tax documents to their customers. These documents are sending crypto investors into a world of confusion and panic as they’ve seen unexpectedly large numbers on the forms. The question that everyone is asking is the question that this article addresses: What do I do with my 1099-K?
Crypto Taxes - The Basics
The IRS treats cryptocurrency as property. This means that crypto’s like Bitcoin, Ethereum, Ripple, and other alt-coins must be treated like owning other forms of property (stocks, gold, real-estate) for tax purposes. Just like with other forms of property, you are required to file your capital gains and losses with the IRS at year end. For an in-depth overview of this process, please read our guide covering the fundamentals of crypto taxes.
What is a 1099-K, and why did Coinbase send me one?
A 1099-K is an informational form to report credit card transactions and third party network payments that you have received during the year. It is not an "entry" document, meaning you don't need to attach or "include" it in your tax return. For information about how to file your crypto taxes, continue reading below.
You should receive a 1099-K if you received payments from credit card transactions or payments from a third party network. In the case of crypto, the third party network (Coinbase, GDAX, Gemini) is required to send you a 1099-K if your payments are over $20,000 or you have over 200 transactions.
Coinbase issued you a 1099-K if you met this criteria because they are required to by tax code and law.
The gross amount of the reportable payment on your 1099-K does not include any adjustments, and it does not represent any gains or losses you may need to report the IRS. It solely reports the gross proceeds from all transactions you’ve made on the network--in this case Coinbase.
That is a lot of fancy language. Boiled down, the 1099-K shows how much you have transacted on a third party network like Coinbase. The IRS wants to know if you have a high volume or high dollar amount of transactions. This form shows them that. This 1099-K is automatically sent to the IRS, so they have an idea of your activity on third party exchanges. However, THIS IS NOT the amount that you are on the hook for your taxes. *exhale*
You are required to report you cryptocurrency transactions to the IRS, and you will only owe taxes on your capital gains; however, if you have losses for the year on your cryptocurrency trading activity, you actually can save money on your tax bill. For those with significant losses, this tax saving can be very substantial. Read more about saving money on your taxes from your crypto losses here.
If you started with $100 of Bitcoin and you sold it for $500 after holding it for six months, you would owe taxes on that $400 gain. On the flip side, if you bought $2,000 of ETH in January of 2018 and traded it into LTC in November, you would likely have incurred a loss and can write this off on your taxes. If you are not familiar with crypto capital gains and taxes, read our article here.
I didn’t receive a 1099-K. Should I still report my crypto gains on my taxes?
It is required by law to report your cryptocurrency transactions on your taxes. Every sale and every coin-to-coin trade is a taxable event. These should all get reported on your 8949 form.
How do I report my crypto transactions on my taxes?
You need two forms to properly file your crypto taxes: The 8949 and the 1040 Schedule D. List all trades onto your 8949 along with the date of the trade, the date you acquired the crypto, the cost basis, your proceeds, and your gain or loss. Once you have listed every trade, total them up at the bottom, and transfer this amount to your 1040 Schedule D. Include both of these forms with your yearly tax return. Read more about how to report your crypto on your taxes here.
If you have a high volume of trades, it could save you time and energy to automate the entire 8949 creation by uploading your trades into CryptoTrader.Tax. Once your 8949 is complete, give this form to your tax professional or upload it into tax preparation software like TurboTax.
To recap: Coinbase sent you a 1099-K because they had to and because you had over $20,000 worth of transactions or over 200 transactions. The IRS was sent a copy of this 1099, so they are aware of your activity (but do not worry because this is not the amount you owe in taxes!). To properly report your taxes on your trading activity, complete the 8949 and 1040 schedule D. The IRS will look at your 8949 and your 1099-K together to determine if you are accurately filing your crypto taxes.
Can I save money by filing my crypto losses?
For more information on saving money by filing your crypto losses, read out article here.
*This post is for informational purposes only and should not be construed as tax or investment advice. Please speak to your own tax expert, CPA or tax attorney on how you should treat taxation of digital currencies.