As cryptocurrency is still a relatively new asset class, the IRS has been trying to determine how this class of asset should be reported for income tax purposes.
For the tax year 2018, the IRS provided guidance for companies to issue 1099-K returns to US customers. Unfortunately, the 1099-K requires us to report the gross transactions of a user (like gross sales for reporting sales tax). The 1099-K was not intended to calculate the gain on a transaction, just provide the gross proceeds. This IRS requirement caused confusion and mistakes with historical reporting that is still being worked through now.
If you require assistance with your 2018 taxes to remedy this situation, (or any other matter), we have a discounted arrangement with TaxBit who are specialists in this area. If they need our assistance, we will of course be happy to help.
In October 2019, the IRS issued guidance that defined crypto as ‘legal’ property for tax purposes. So for the 2019 tax year and forward, we have issued US customers the Form 1099-B form. This form provides the appropriate details for reporting the gains and losses on crypto sale and exchange transactions as compared with the Form 1099-K which does not include all the necessary details.
Specifically, the 1099-B is designed for capital assets such as stocks, bonds, and commodities, which, like cryptocurrencies, have a cost basis. Only the gain/loss you make on cryptocurrency transactions should be taxable. This 1099-B form is the same form one would receive from a brokerage firm.
We apologize for any issues the previously provided Form 1099-Ks may have caused and would like to again highlight our arrangement with TaxBit that can assist with any IRS inquiries.