Home » Everything You Need to Know about the IRS New Crypto Tax Form

Everything You Need to Know about the IRS New Crypto Tax Form

by Techager Team
Everything You Need to Know about the IRS New Crypto Tax Form

The United States enacted the Infrastructure Act Congress in 2021 placed bitcoin exchanges under the disputed “broker” classification and linked them to the IRS information disclosure framework. As a result, crypto exchanges will have to report to the Internal Revenue Service the annual profits and losses in bitcoin made by their clients, much like stock brokerages are compelled to do.

But how is the IRS planning on taking such a step? What are the latest updates you need to be aware of? And is there any new crypto tax form? We’ll answer all of these questions in this blog.

Form 1099

Financial institutions must complete a 1099 form to summarise a client’s taxable yearly activities. There are several different kinds, such as 

  • 1099-Bs (proceeds from broker and barter exchange transactions), which stock brokers issue to report yearly gains and losses from stock transactions
  • 1099-INT (Interest Income) forms, which financial institutions use to report yearly interest income
  • 1099-MISC crypto tax form, which some cryptocurrency exchanges use to report staking and other similar types of income

Each 1099 form comes in three copies: 

Crypto Tax FormFiled by
Copy AThe financial institution submits it to the IRS 
Copy 1The financial institution submits it to the IRS 
Copy BCustomers receive it to include with their taxes

Problems with 1099 Crypto Tax Form

At present, there isn’t already a specific 1099 crypto tax form for recording annual bitcoin earnings and losses. In the past, several exchanges have utilized Form 1099-K to record cryptocurrency activities in the lack of a crypto tax form specifically for cryptocurrencies. Some people have chosen to forgo creating any forms for profits and losses. Because of this, exchanges have traditionally reported little to no information to the IRS.

As a result, fewer cryptocurrency users are complying with tax laws. Customers mistakenly assume there is no activity to record or taxes to pay since they don’t receive a form at the end of the year — but that is not the case! So, what’s the way out?

Form 1099-DA

The American Infrastructure Bill was approved by President Biden in November 2021. The law said that beginning with the 2023 tax year, cryptocurrency exchanges would have to provide 1099 forms to the IRS detailing the financial gains and losses of their customers.

Many figures in the bitcoin sector criticized this regulation. Due to the peculiar characteristics of cryptocurrencies, it is challenging for exchanges to appropriately record the capital profits and losses of their consumers.

To address this problem and make it simpler for crypto exchanges to record their clients’ behavior, the IRS is probably developing Form 1099-DA.

Purpose of Crypto Tax Form 1099-DA

Form 1099-DA intends to remedy this by collecting cryptocurrency activity and requiring exchanges to disclose it to the IRS annually. It is fair to anticipate that this new form will provide the details necessary to determine profits (or losses), such as the kind of asset, the date the item was acquired, the date it was sold, the gross proceeds, and the cost basis.

Potential Drawbacks with 1099-DA for Users of Multiple Exchanges

Although information reporting has undoubtedly improved tax compliance in many non-crypto industries, applying the same traditional approach to the crypto world is risky because of decentralized financing, transfers, and self-custody. Moreover, there is a chance that it may fail entirely.

  • DeFi exchanges that are expanding quickly, like dYdX and Uniswap, won’t be able to generate any kind of 1099s since users aren’t providing the KYC information (username, address, and SSN). Any kind of 1099 must normally have this information in order to be filed with the IRS and the states.
  • Additionally, self-custody is typical in the cryptocurrency industry to guarantee the security and anonymity of assets. Because the cost-basis information is typically unavailable, self-custody securities will also make it more difficult for exchanges to issue comprehensive 1099s.
  • Lastly, consumers of several exchanges will probably receive several 1099-DAs from different platforms. Taxpayers will need to employ cryptocurrency tax software to verify activity across several wallets and exchanges as a result, which might cause uncertainty.

The Bottom Line

The 1099-DAs will probably provide all the information required for you to file taxes correctly if you are a single-exchange user (a rapidly dwindling subset of cryptocurrency investors). Your tax filing will be quicker, simpler, and less expensive as a result.

In the upcoming months, you may anticipate seeing the Form 1099-DA form and the proposed regulations.

FAQs

  1. Do you get 1099 for cryptocurrency?

Before the 2023 tax year, cryptocurrency traders won’t be obliged to issue 1099-B forms. You should still declare any cryptocurrency sales or trades on your taxes even if your cryptocurrency exchange doesn’t send you a Form 1099-B.

  1. What tax form do I use for cryptocurrency?

Cryptocurrencies are sometimes referred to as “virtual currencies,” but the IRS does not consider them to be real money. Thus based on IRS Notice 2014-21, the IRS views cryptocurrencies as property, necessitating the reporting of capital profits and losses on Schedule D and Form 8949 when needed.

  1. Will Coinbase send me a 1099?

The IRS and US traders who received over $600 in cryptocurrency rewards or staking receive Forms 1099-MISC from Coinbase. You must record all cryptocurrency profits on your tax filings whether or not you obtain Coinbase tax paperwork.

Related Posts

Techager site Logo

Techager is a pure tech online webpage that provides the tech, mobile & apps reviews, digital marketing, and website reviews around the World. Techager Team is an authentic source of tech news whether it’s mobile & apps, digital marketing news, and so on.

Contact us: info@techager.com

@2023 – Techager. All Right Reserved. Designed by Techager Team