How the United States IRS views cryptocurrency today
As virtual currency continues to mature and gain adoption, the IRS is increasing its focus on proper reporting of taxable gains and losses. In October 2019, the IRS issued detailed guidance on virtual currency transactions and emphasized that crypto is considered ‘legal’ property for tax purposes. Form 1099-K is a tax form that reports income earned on a third-party platform (e.g; eBay and Etsy sellers receive a 1099-K because they provided goods/services in exchange for income). Form 1099-K was not, however, designed to report property transactions that carry a cost basis. As a result of Form 1099-K, the IRS began issuing tens of thousands of crypto audits seeking that taxpayers report the number on Form 1099-K as income on their tax return. This was incorrect. Trading cryptocurrency does not fall into the category of providing goods/services in exchange for income. Cryptocurrency is a capital asset in the same way as stocks, bonds, and precious metals and has a cost basis attached with each transaction.
Broker dealers and other intermediaries for stocks, bonds, and commodities have long issued Form 1099-B to properly report cost basis and profit to users.
Uphold has now chosen to follow this well-established precedent and help users properly report their taxable crypto transactions on Form 1099-B. This reduces your potential tax bill compared with a 1099-K.