Some cryptocurrency exchanges report gross income from crypto rewards or staking as "other income" on Form 1099-MISC. The 1099-MISC won't report individual transactions from staking or rewards, just your total income from them. You should to report each transaction, as well as any other crypto transactions, on your Form 1040.
Key point: The IRS gets a copy of any 1099-MISC sent to you. So don't assume you can just fly under the radar without detection.
How is crypto reported on Form 1099-K?
Form 1099-K reports the total value of cryptocurrencies that you bought, sold, or traded on the platform that handled the transactions. Form 1099-K is also known as a Payment Card or Third Party Network Transactions form. It's commonly used by credit card companies and payment processors like PayPal to report payment transactions that were processed for third parties.
Form 1099-K is also used by some crypto exchanges to report receipts from crypto transactions -- as in Examples 1, 2, and 3 above. However, Form 1099-K is typically sent only to U.S. taxpayers who made 200 or more transactions with a total volume of $20,000 or more. The amount reported on Form 1099-K does not equate to your tax gain or loss from crypto trading conducted on the reporting exchange. If you traded often, you could have a large trading volume reported on Form 1099-K, but only a relatively small net tax gain or loss.
Key point: The IRS gets a copy of any 1099-K sent to you, and the agency will therefore expect to see some crypto action on your Form 1040.
How is crypto reported on Form 1099-B?
Form 1099-B is mainly used by brokerage firms and barter exchanges to report capital gains and losses. Unlike Form 1099-MISC and Form 1099-K, Form 1099-B reports gains and losses from individual transactions. While 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. A few crypto exchanges issue Form 1099-B.
Key point: The IRS gets a copy of any 1099-B sent to you.
When you won't get a 1099
If you simply made a payment last year using a cryptocurrency, as in Example 4 above, you won't receive a Form 1099 for 2021. Form 1099, in any of its various flavors, is only issued if you receive a payment.
The bottom line
You may be unaware of the federal income tax implications of cryptocurrency transactions. But the IRS doesn't usually accept ignorance as an excuse for failure to comply with tax rules.
Detailed records are essential for compliance. Your records should include: (1) when the cryptocurrency was received, (2) the currency's FMV on the date you received it, (3) the currency's FMV on the date you exchanged it (for U.S. dollars, a different cryptocurrency, or whatever), (4) the cryptocurrency trading exchange that you used to determine FMV, (5) and your purpose for holding the currency (business, investment or personal use).
With this information, you and/or your tax pro can determine the federal income tax consequences of your 2021 crypto transactions. Depending on where you live, there may be state income tax consequences too. Good luck with all this.
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See also:Want to donate to charity with crypto? 'It's a massive community of people that are ready to give, but they're not being asked'
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01-15-22 1852ETCopyright (c) 2022 Dow Jones & Company, Inc.