Forms 1099K and 1099Misc? If you’re looking for a simple explanation for these, you’re in the right place. Maybe you’ve received one, and we’re going to explain how to not let it be an issue.
The taxman at the door is worrisome enough. The last thing we need is the taxman at the door with complicated jargon and those dread awful forms. These forms have been sending crypto traders into panic mode as the IRS figures out and comes up with new regulations for virtual currency.
There’s good and bad news.
The good news is you don’t have to worry. At all. Here’s all you need to know.
You use a 1099-K to report third party network payment and credit card transactions you’ve received during the year. This form is NOT included in your tax return.
You’ve received a 1099-K from your exchange because your payments are over $20,000 or you have more than 200 transactions. Your exchange sends this to you, and the IRS. This excludes adjustments and any profit/losses you would report to the IRS. It has just Gross Payments from all your transactions on the exchange. You won’t be paying taxes on this gross figure.
Mostly because the taxation system for virtual currencies is still evolving. Even though the IRS has flooded your inbox with letters like the 6173, 6174-A and CP2000, the information based on which they are sending you these letters is misleading and incomplete.
Your exchange sent you a 1099-K because they had to and sent a copy to the IRS too.
But this does not show the amount you owe in taxes and using this to report your taxes would be incorrect.
Nothing, Relax! There is no cause for concern here. All of this is just what the process is. Coinbase, in the interest of compliance, has proactively decided to not go ahead with the 1099-K form and replace that with the 1099Misc form for 2020.
If the 1099-MISC form became for crypto traders, “a lot more people are gonna get it because the threshold for getting a 1099-MISC is very low. While switching to the 1099-MISC is “not a perfect solution” to problems faced in crypto tax reporting, it
“could help Coinbase improve its compliance status by subjecting more users to reporting requirements”, said Shehan Chandrasekera, head of tax strategy at CoinTracker, a portfolio monitoring service.
This is because 1099MISC forms will be sent to everyone earning more than $600 and above.
Chandraseakera, who is also a Certified Public Accountant, further pointed out that since the new form does not have a place to report the price the virtual currency may have been purchased for, it does not solve the cost basis issue. And even if there were
a place to include that, your exchange may not be able to find all that information.
This makes you responsible for keeping track of the price you purchase digital assets at.
Oh, and the bad news is you still need to pay your taxes. Preferably using the help of a very friendly Mr. Ted, a user friendly taxation software, and professional CPA help.
All of which you can obtain at industry-beating rates, only at BearTax.