There is a high chance that you might have received a document called Form 1099-K from Coinbase pro and numbers could completely be off and that’s the reason you could be reading this article.
YOU ARE NOT ALONE! WE ARE HERE TO HELP!
Exchanges like Coinbase pro provide transaction history to every customer, but only customers meeting certain mandated thresholds will also receive an IRS Form 1099-K. But why are the numbers so high, what do those numbers mean, what can we do with Form 1099-K and how to use it in filing taxes?
You would have received a Form 1099-K from Coinbase Pro. All it really says is how much money you had IN from everywhere. It doesn’t display any info on how much you made/lost with each trade.
According to the IRS, A Form 1099-K includes the gross amount of all reportable payment transactions.
So, what can do you do with this 1099-K?
Coinbase’s 1099K form is a kind of consolidated information describing the volume of your trades (Exchanges like Coinbase provide transaction history to every customer, but only customers meeting certain mandated thresholds will also receive an IRS Form 1099-K.).
You will receive a 1099K when you received payments in settlement of third-party payment network transactions above the minimum reporting thresholds of –
- gross payments that exceed $20,000, AND
- more than 200 such transactions
Why are the numbers so high?
Even though you could have just traded with $10K — it will have all the buys and sells and the final number looks daunting. Since it is the sum of all payments settled for you and all the transactions done on that platform – it could very well be the sum of your deposits, every sell transaction crediting you USD and more such settlement events.
That is the reason, this number could be very high. You can contact the coinbase pro support team and create a ticket to request the right document. Alternatively, you can calculate your actual gain/loss using software and report those gains and substantiate with documents generated for you.
Do you owe taxes on that ridiculously high amount?
NO! In most of the cases, receiving a 1099-K doesn’t necessarily mean you owe taxes on that amount. As mentioned above, it is the amount settled as payment for you. But your actual capital gain or loss could be completely different and this depends on the FIFO matching of your trades. 1099K won’t be much use for filing your taxes.
What you should do now?
You should consolidate your trades from Coinbase and Coinbase pro together and then identify and remove non-taxable events like transfers between exchanges. Then map your transactions in First-In-First-Out or identify specifically for buys and sells to calculate your gain or loss.
You can automate the majority part of this, which is explained in later sections below.
How do taxes on cryptocurrency work?
If you have capital gains, use Form 8949, Sales and Other Dispositions of Capital Assets, and then summarize capital gains and deductible capital losses on Form 1040, Schedule D, Capital Gains, and Losses.
Form 8949 will have all your taxable events describing when a particular quantity of cryptocurrency has been bought and at what price, when it was sold and for what price and your net gain or loss. The cumulative amount of the gain-loss from all taxable events is what goes on Form 1040, Schedule D.
If you had losses, you can deduct them in the following ways.
- If you have traded just the crypto and your loss is $2,500 – you get to deduct it from your taxable income and file taxes accordingly.
- If you have traded stocks and have gains of $10,000 on stocks and $5,000 loss on crypto – your net gain is $5,000 and you pay capital gains tax on it as applicable.
- If you have traded stocks with gains of $10,000 and a loss of $12,500 on stocks – then you get to claim a loss of $2,500.
- If your gains on stocks in $10,000 and loss on crypto is $16000, your net loss is $6,000. However, you can only claim up to $3000 in losses on your taxes and take the remaining amount forward to the next tax year.
That’s about capital gains or losses. If you have been paid in crypto or mined it or earned it in staking and other airdrops, then it should be reported as income.
If you need to report an ordinary income from crypto, use Form 1040, U.S. Individual Tax Return, Form 1040-SS, Form 1040-NR, or Form 1040, Schedule 1, Additional Income and Adjustments to Income, as applicable.
Have you traded on other exchanges too (80% of users)
If you have traded on Coinbase and other exchanges — then the tax form provided by Coinbase is of no use (see below for exclusions)
In this case, our cryptocurrency tax software BearTax can help you import from 60+ exchanges, various wallets, and DeFi platforms, review them and calculate your capital gains or losses.
Once the calculations are done, you can preview your gain or loss without having to pay a penny.
What documents does BearTax provide?
8949 capital gains document: Download the auto-generated 8949 capital gains document, that goes along with your tax filing. This document can be sent to your accountant and he/she should be able to take care of the rest
Detailed audit friendly CSV: This document is often requested by accountants to take a deeper look at your taxable transactions before filing your taxes. This gives them confidence in what happened with all the trades and can be used to defend you if the time comes.
Export to TurboTax: Undoubtedly, TurboTax is the famous and favorite tax software for individual self-filing – TurboTax allows you to report your gain/loss from cryptocurrency. BearTax provides you just the necessary document, which you can drag and drop onto TurboTax and get done with it. So Simple!!!
Export to TaxAct: You can export your gain/loss in TaxAct format – which is used by the majority of accountants to upload on their software etc.,
Aggregated Tax Documents: If you are a heavy trader – a day trader posting thousands of transactions, these documents could be of help in reducing the number of pages you submit with your taxes. BearTax can aggregate your transactions by each virtual currency or cryptocurrency and show the consolidated gain/loss that you can report on your taxes. This is also useful for those who want to enter the capital gain loss numbers manually in some other tax software.
Income Statements: Last but not least! Income statements are something very important to declare your income received in cryptocurrency. This could be through mining, staking, referrals, airdrops, forks and more. BearTax supports 10+ categories of income and provides you a consolidated income statement for FREE.
Signup now on BearTax and get your crypto taxes done.