IRS rules and regulations are notoriously complex, and the agency isn't known for user-friendliness. If you've received a 1099-B from your exchange, you may wonder how it applies to your taxes. Moreover, you may wonder what happens when you don't receive a 1099-B or receive a different type of 1099 from another exchange.
In this guide, you'll learn about 1099-B forms, how they apply to crypto transactions, and what you need to know to avoid IRS problems.
Crypto Taxes 101
The IRS treats cryptocurrencies as property for tax purposes, meaning you may owe ordinary income and/or capital gains taxes.
There are several taxable events:
- Disposals – You sell, trade, or spend a cryptocurrency.
- Rewards – You earn cryptocurrency via mining, staking, or airdrops.
- Income – You earn cryptocurrency as compensation for work.
Generally, the IRS classifies income and rewards as ordinary income and disposals as capital gains. For example, you might receive crypto from an employer and report it as ordinary income. Then, when you sell, you must pay capital gains tax on any increase in value.
While some transactions are straightforward, the IRS has yet to weigh in on some more complex scenarios. For instance, it's unclear whether wrapping a token (e.g., wBTC) constitutes a disposal – and therefore creates a taxable event for a crypto trader or investor.
The crypto tax reporting process usually involves listing disposals and computing your capital gain or loss on Form 8949. Then, the final figure carries over to Form 1040, where you calculate your total tax bill.
What is Form 1099-B?
Most stock traders and investors are familiar with Form 1099, which tracks the disposal of capital assets and shows your profit. Typically, you would use this information to complete Form 8949 without manually computing each transaction's cost basis and gain or loss.
The form includes a description of the property, the original acquisition date, the sale date and price, the original price, and any applicable deductions. In addition, the form may include any federal taxes withheld, gains or losses incurred, and state withholding taxes.
Unlike stock brokers, crypto traders often use multiple exchanges. Since cost basis calculations are chronological, the 1099-Bs that exchanges produce may not reflect your actual cost basis. As a result, you cannot always rely on the data from these forms to complete your taxes.
Moreover, the Build Back Better Act's inclusion of a Form 1099-B requirement for crypto brokers led to Coinbase, Square, and other companies expressing concern that the definition of a "broker" was overly broad. As a result, the IRS delayed the requirements indefinitely.
How to Use Form 1099-B
Taxpayers don't send Form 1099-B to the IRS with their tax returns, but they may need the information to complete Form 8949. Then, most taxpayers will record the totals for those transactions and carry it over to Form 1040 Schedule D for inclusion with the rest of their return.
Notably, the IRS receives a copy of Form 1099-B from the issuer. The agency may reference these figures when determining how much they think you owe. However, these estimates may not be accurate if you use multiple wallets and exchanges since the cost basis will be incorrect.
There are two ways to use the form:
- Single Exchange – If you only use a single crypto exchange, the information may be accurate, and you can copy it over to Form 8949 when completing your tax return.
- Multiple Exchanges & Wallets – The cost basis may be inaccurate if you use multiple wallets or exchanges. As a result, you may need a crypto tax solution, like ZenLedger, to aggregate transactions and compute the cost basis chronologically.
If you're using option two, it's critical to document your calculations on Form 8949. Otherwise, the IRS will see the difference between your computed tax liability and the Form 1099-B it receives and assume you've understated or overstated your tax liability.
ZenLedger makes it easy to compute and file crypto taxes accurately. After connecting your wallets and exchanges, the platform automatically aggregates transactions and generates Form 8949, Schedule D, and other tax forms you must file. You also get a detailed audit trail that you can use to defend any decisions in the event of an audit.
Frequently Asked Questions
Will I get a 1099-B for crypto?
Crypto brokers and exchanges aren't required to provide 1099s to their customers. As a result, you could receive a Form 1099-B or alternative 1099s, like a 1099-MISC. Or you may receive nothing at all.
The following exchanges may send Form 1099-B:
- BlockFi (bankrupt)
Does Coinbase Provide 1099-B?
Coinbase issues a Form 1099-MISC to the IRS and to customers with $600 or more in rewards, fees, or staking. If you sign in, you can find these documents in the Documents section of your Coinbase Tax Center. However, it does not send a Form 1099-B.
What if I didn't receive Form 1099-B?
Crypto exchanges aren't required to provide tax documents under current tax laws. But, even if you don't receive a 1099-B, you must still report your cryptocurrency transactions to the IRS. If you fail to report transactions, you could owe penalties and interest on any back taxes.
The Bottom Line
Crypto taxes can be complex if you have multiple wallets and exchanges. If you receive a 1099-B from a crypto exchange, the capital gain or loss may not align with your calculations. That's because one exchange doesn't know about transactions on different exchanges, meaning they have no way of knowing the cost basis.
If you need help aggregating transactions to compute your cost basis, ZenLedger can automate the process by connecting directly to exchange APIs or importing transactions from a wallet.