A Crypto Trader's Guide to 1099 Forms in 2023
1099's are the centrepiece of IRS crypto tax enforcement and the most significant driver of CP2000 notices issued by the IRS specifying differences in the amount of tax the IRS thinks you owe vs your filed taxes.
1099 forms document different types of payments made to you by individuals or businesses that are not your employer. These forms are sent directly to the IRS, and sometimes to your state taxing authority, and report payments made to you during the tax year by businesses in 2022.
All US-based centralised exchanges will be issuing 1099 forms, enabling the IRS to track crypto transactions from fiat-on ramp to initial purchase. Third-party tools like Reactor allows the IRS to continue to trace crypto transactions into DeFi, on-chain, and self-custody wallets.
Yes, the IRS knows about your crypto. Despite popular belief, audits are not random. The IRS uses data flags to determine if your SSN should be selected for an audit, and potentially send you a CP2000 if there is a discrepancy between your filed taxes and the data they have. Remember - Almost 90% of audits result in a change to the tax return - H&R Block.
1099's are a friendly reminder that the Money Printers want their taxes!
What should you do if you don't get a 1099 from every income source? AKA have you been investing in LPs on DEX's?
Record keeping, in a continual manner, is essential for those of us who have invested, traded, or staked on various DeFi projects. As mentioned, the IRS has software to track these on-chain transactions but may require accurate crypto transaction records to get a correct tax result. While you could request a 1099 form from a DEX it wont happen in most instances. If your CEX still needs to provide a 1099-MISC, K or B you should ask for it ASAP.
CryptoTaxCalulator supports over 600+ integrations simplifying record keeping - you just need to import the transactions regularly. Start importing transactions now.
If a CEX you traded on submits a 1099 to the IRS and you don't declare these transactions, you could receive a CP2000 due to the differences in the IRS data and your filed return.
The 1099 MISC is sent to the IRS by any company reporting payments other than nonemployee compensation. If you have recieved staking rewards, income for contracting work, or other payments from crypto investments in 2022 you are likely to recieve a 1099-MISC this year if any of the following events have occurred:
- $10 in royalties recieved (hello, NFT creators)
- $600 in staking rewards, income or other DeFi-Web3 financial instruments that earn you profits (see the US tax guide 2022 - Income tax events for more info)
- Fees for learning rewards over $600
- Prizes and awards issued in crypto by a company with a market value at the time of issuing of over $600
The issuing company's tax identification number (TIN) may need to be added to your 1040 worksheet.
Form 1099-B is sent to the IRS with exact details about your buys - cost basis, gross proceeds, and any capital gains or losses. While the 1099-B submitted to the IRS has exact figures, this information might need to be corrected and should be reviewed and compared to the capital gains report from CryptoTaxCalulator.
The 1099-K is focused on your total transactions and the total values of those transactions. It is not what has been reported to the IRS as your taxable income or capital gains. If you have made over 200 trades or traded over the value of $20,000 in 2022, you may receive a 1099-K. This information form is another flag in the IRS's system to aid their tax compliance program.
Tell the payer immediately it is wrong and keep records of why it is wrong. Ask the payer for a corrected 1099 form to be sent to the IRS. Depending on their submission approach, they can tick a particular check box to correct a previously submitted form. You also want to ensure you have accurate records in CryptoTaxCalulator so you can show the correct on-chain transactions to the IRS vs the incorrectly reported values in the 1099 form you recieved.
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