In the event you engaged in crypto buying and selling in 2022, it’s potential you might obtain Type 1099-Ok this yr. However what’s this manner telling you, and what must you do with it? Let’s break it down collectively.

To make digital foreign money buying and selling extra user-friendly, crypto exchanges (like Coinbase, Gemini, Kraken, and so on.) have enabled their customers to make transactions via third-party fee networks.

What are third-party fee networks?

Third-party fee networks are corporations that course of bank card and different on-line fee transactions for on-line retailers (or crypto exchanges, on this occasion). Some examples are Paypal, Venmo, Google Pay, and Apple Pay.

Why did I obtain a 1099-Ok from my cryptocurrency change for crypto buying and selling?

Third-party fee networks and on-line retailers use Type 1099-Ok to report the transactions out of your processed funds. Not all crypto exchanges make the most of Type 1099-Ok (they might as an alternative problem different 1099 kinds), however some do.

Previously, the IRS solely required third-party fee networks to report transactions to the IRS for those who had at the least 200 transactions totaling at the least $20,000 in a yr. This was set to vary in 2022, however the IRS delayed the adjustments by one yr.

Beginning in tax yr 2023, third-party fee platforms should report transactions to the IRS in case your transactions complete $600 or extra, whatever the variety of transactions made. If, for instance, you had one crypto sale totaling $600, you might obtain a 1099-Ok for that transaction in 2023.

It’s unclear whether or not extra crypto exchanges will begin sending 1099-Ks, however for those who acquired one to your crypto transactions this yr or anticipate to obtain one subsequent yr, hold studying!

Do I have to report my crypto earnings to the IRS?

Sure, though the best way to take action differs from a typical W-2.

The IRS considers cryptocurrency to be a digital asset and treats it as a type of property. In the event you promote digital foreign money for a revenue, you’d report the revenue as a capital acquire. In the event you had been compensated with cryptocurrency, it’s thought-about odd earnings and taxed as such. On this case, you’d report the earnings as “different earnings” in your federal earnings tax return.

It’s necessary to notice that Type 1099-Ok doesn’t report your crypto beneficial properties and losses — it’s merely a abstract of all of your crypto transactions. Which means that not all of the transactions reported on the 1099-Ok are essentially taxable, which might make the shape extraordinarily complicated, particularly for brand spanking new crypto merchants.

How do I report my 1099-Ok for cryptocurrency?

Since 1099 kinds are purely informational, you don’t want to incorporate them together with your federal earnings tax return, however you must use any 1099s to report related earnings appropriately.

You will have different tax kinds associated to crypto buying and selling, reminiscent of Type 1099-MISC or 1099-B. If relevant, you should use these kinds along with Type 1099-Ok to appropriately report your crypto earnings or losses.

TaxAct^® strives to make crypto tax reporting as easy as potential. As you undergo the e-filing course of with us, you’ll see a bit known as “Much less widespread earnings.” When you verify this field and choose the kind of earnings you acquired, you’ll see a bit on cryptocurrency:

On this display screen, you’ll be able to verify all of the bins that apply to your crypto transactions for the present tax yr, together with beneficial properties, losses, crypto curiosity, mining earnings, and so on. We’ll ask detailed questions on every class that can assist you appropriately report your crypto earnings. You’ll additionally be capable of import a CSV of your transactions, in case you have one, or achieve this manually:

After you’ve gone via our crypto reporting part, you have to be finished reporting your crypto earnings!

Foremost takeaways

In the event you obtain an sudden Type 1099-Ok out of your crypto change this yr, guarantee you already know what it’s for and how you can use it. Submitting with TaxAct makes the method stress-free — we’ll information you thru it step-by-step so you’ll be able to file shortly and confidently.

This text is for informational functions solely and never authorized or monetary recommendation.

All TaxAct presents, services are topic to relevant phrases and circumstances.