Form 1099-B For Cryptocurrency Reporting: Brokerages & Other Financial Activities

A simple guide to help you understand the importance and uses of IRS Form 1099-B when you invest in crypto through the brokerage.

Businesses and individuals alike invest in stocks, shares, cryptocurrencies, and other tradable commodities. The person or entity that buys these commodities from an exchange is a buyer, and the one who sells the commodities is a seller.

However, when the value of the stocks increases or when the buyer is new to exchanges, they usually get their market insights and advice from a broker – a middleman between the buyer and seller.

The brokerage is responsible for reporting all the transactions that they have enabled between the buyer and the seller and must report any capital gains that their customers have made during the year.

And for this, the brokerage is required to use the IRS Form 1099-B.

The following will discuss in detail the significance and uses of Form 1099-B, focusing on crypto transactions.

What Is Form 1099-B?

Form 1099-B is an informational form required to be filed with the IRS by brokerages and barter exchanges.

This form itemizes and reports all commodity exchange transactions made throughout the year and includes capital gains or losses made by the customers in a year.

Cryptocurrencies are treated as “real” property by the IRS. This means the tax principles that apply to a capital asset also apply to your cryptocurrencies.

Further, any capital gains or losses made on your cryptocurrencies have to be reported on Form 1099-B.

Both brokerages and their customers have to itemize and report these transactions accurately.

Brokerages, however, have to submit 1099-B with the IRS and must send a copy of 1099-B to all their customers for tax purposes.

Significance Of Form 1099-B

Primarily, Form 1099-B helps the IRS understand the investments made by an individual or an entity on stocks, shares, cryptocurrencies, and more. It also helps the IRS verify if the same transactions have been reported by the buyers and sellers who were involved in a transaction.

The capital gains or losses made through these investments by the customers are validated to tax the brokerages and the customers accordingly.

For example, if a customer approached a broker like Coinbase to buy cryptocurrency from a private seller, the transaction has to be reported by Coinbase in 1099-B.

Further, if the customer makes a capital gain on the cryptocurrency, then the same has to be reported by the brokerage in 1099-B. And the customer’s tax reports have to recognize these gains or losses respectively.

Let’s enunciate this further.

Let’s say that you bought 10 crypto coins from Coinbase for $50,000. Now, if you sold the coins before the end of the tax year for $60,000, then the excess $10,000 will be subject to capital gain taxes. On the contrary, if you made a loss, the capital loss will reduce your tax burden. And the same has to be reported on Form 1099-B.

Form 1099-B & Cryptocurrency Reporting

Form 1099-B is used to improve reporting transparency of capital investments and capital gains within the commodity exchange industry.

There is no denying that the cryptocurrency industry is known for its notorious tax evasion regimes and non-compliant practices [1].

In order to regulate voluntary reporting and accelerate tax compliance, the IRS is cracking down on entities that are hiding their incomes through cryptocurrencies.

If you have made a profit through cryptocurrency, it still counts as a capital profit and must be reported in Form 1099-B. And this federal tax form is used for this exact purpose.

Be it virtual assets or hoarded crypto coins, the IRS “sees you” and all your transactions and it’s only about time before they hit your non-compliant virtual entities with notices and assesses penalties.

Amplify Cryptocurrency Tax Reporting With Tax1099

Brokerages and barter exchanges (buying crypto with crypto) observe a high volume of transactions throughout the year. Capital gains and losses are variable, and the varied changes to the capital structure of each organization can further complicate the process of tracking capital gains or losses for all your customers.

With Tax1099, you can manage all your crypto transactions in one place. With 12+ seamless integrations, you can make real-time changes to your data as and when you identify and record your transactions.

Our dynamic platform replicates these changes appropriately to help you report your crypto transactions with accuracy.

You can further automate your crypto reporting process by choosing our Crypto Tax solutions.

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