Coinbase announced that it will issue form 1099-MISC to certain users for the 2020 tax year, replacing the old 1099-K forms that have created major tax headaches for investors. This is great news for users of the largest cryptocurrency exchange in the US.
Form 1099-K for cryptocurrency investors tends to lead to large and incorrect tax bills from the IRS. By issuing the 1099-MISC instead, Coinbase is taking an important step toward making tax reporting easier for its users. However, not everyone who uses the exchange will receive a 1099-MISC, and the form doesn’t cover all of your reporting needs.
Read on to see what Coinbase’s big tax news means for you.
Who will receive a Coinbase 1099-MISC?
You will be eligible to receive a 1099-MISC from Coinbase if you are a US-based user who received at least $600 worth of crypto from rewards or staking in 2020 and beyond, according to a post on the company website.
It is unclear whether the 1099-MISC will report anything other than crypto earned through rewards or staking.
It seems that users who don’t qualify to receive the Coinbase 1099-MISC form will not receive any other tax forms from the exchange. However, it’s required to report cryptocurrency taxes regardless of whether you receive any such forms.
If I receive Form 1099-MISC from Coinbase, will that cover all my reporting needs?
No, unfortunately, the 1099-MISC will not include everything you need for a full crypto tax report. Visit our crypto tax FAQ post to learn more about how to report cryptocurrency on your tax return.
The gold standard in tax reporting for asset sales would be a Form 1099-B, which is what brokerage firms use to report stocks and securities. These forms include the cost basis and sales price, and make tax reporting a breeze. But, unfortunately, Coinbase has advised that it will not be issuing any 1099-Bs at this time.
Why is Coinbase’s 1099-MISC better than the old 1099-K?
If you’ve been following our blog or videos, you know that the IRS in recent weeks has sent thousands of CP2000 crypto notices to suspected crypto traders. These notices claim that you owe money to the IRS due to underreported income. In the case of cryptocurrency investors, the CP2000 notice is often based on incomplete information from Form 1099-K.
We’ve seen many of these letters claiming that a taxpayer owes hundreds of thousands of dollars to the IRS, even if they traded their crypto at a loss!
That’s because the 1099-K that the IRS has relied on up to now only reports your total sales proceeds amount, not the cost basis (the amount you initially paid for your crypto). If your total sales proceeds were, say, $1 million and you never reported your full cost basis, the IRS treats this as if you had capital gains of $1 million.
Our firm and many others have expressed concerns with crypto exchanges like Coinbase issuing Form 1099-K, suggesting that this form is not proper for cryptocurrency transactions. The announcement from Coinbase that it’s ditching the 1099-K is great news for its US users!
Questions about reporting taxes from Coinbase?
If you’re a cryptocurrency investor or trader using Coinbase (or any other exchange, for that matter), call our experienced crypto tax attorneys for all your reporting needs! We’ve been dealing with cryptocurrency taxes since 2014 and have helped hundreds of investors report properly to avoid penalties.