Coinbase has decided to stop sending customers in the US with the 1099-Ks tax form, which led the IRS to mistakenly believe traders were underreporting their profits.
According to a Coinbase blog post, the 1099-Ks form will now be replaced by the 1099-MISC form, at least for customers who earn interest on lending and similar products. According to the article, traders who do not meet the 1099-MISC criteria most likely will not receive tax forms from Coinbase to prepare for taxes.
In a blog post, Coinbase stated that it will not be issuing IRS Form 1099-K for the 2020 tax year. The 1099-K form, used by some cryptocurrency exchanges to report transactions to users, often contains misleading information as it only lists the gross income from cryptocurrency transactions, excluding the base price.
Therefore, according to the data provided in the form, sometimes all transactions can be shown as generating income, even if some of them resulted in losses. This leads to the fact that the exchange transmits data about a significantly increased tax burden for the user.
Recently, many cryptocurrency investors have received yet another “happiness letter” from the IRS, in which the agency demanded excessive tax on cryptocurrency income. Cryptocurrency investors have already received similar letters last year and in the middle of this year. TaxBit co-founder Justin Woodward said users received emails as exchanges reported transactions to the IRS using Form 1099-K.
In a blog post, Coinbase announced that it will also not be issuing 1099-B Forms. That being said, 1099-MISC forms will be sent to users who earn “from $ 600 in cryptocurrency with Coinbase Earn, USDC rewards and / or staking in 2020.”
However, the exchange’s statement did not specify whether, in the absence of the 1099-K form, regular cryptocurrency sales would also be registered in the 1099-MISC forms. According to the article, clients who have not received any forms from Coinbase and have not sold or converted cryptocurrency in 2020 are still responsible for reporting to the IRS and should consult with tax professionals.
If 1099-MISC becomes the standard for traders, “a lot more people will get it because the threshold for 1099-MISC is very low,” said Shehan Chandrasekera, head of tax strategy at CoinTracker. While the 1099-K is exclusively for customers with over 200 transactions per year worth over $ 20,000, the 1099-MISC covers anyone with an income of $ 600 or more.
While the move to 1099-MISC is “not a perfect solution” to the challenges facing the industry, Chandrasecker said it could help Coinbase improve user tax compliance. He noted that the transition to the new form does not solve the “problem with the base price of assets”, because in the 1099-MISC form there is also no special field for indicating the price at which the cryptocurrency was purchased.
“Even if the form had a dedicated field, Coinbase might not always be able to provide the information it needed. Therefore, it is the user’s responsibility to track the base price of a cryptoasset, ”Chandrasekera said.
