What Is a 1099-K?
When Does Coinbase Send a 1099-K?
- Arkansas: $2,500
- District of Columbia: $600
- Massachusetts: $600
- Mississippi: $600
- Missouri: $1,200
- New Jersey: $1,000
- Vermont: $600
Does This Mean I Have to Pay Taxes on Cryptocurrency?
What Cryptocurrency Transactions Are Taxable?
- Mining cryptocurrency. The cryptocurrency you receive from mining is payment for the service of offering your computer’s processing power. Related expenses may be deductible from this income.
- Selling cryptocurrency. When you sell cryptocurrency, you pay tax on any gain over what you bought it for.
- Trading for a different type of cryptocurrency. Trading one type of cryptocurrency for another, even when you never receive cash, is the same as selling one type and buying the other. Note that some CPAs have previously suggested that this would not be taxable under the like-kind exchange rule. The Tax Cuts and Jobs Act of 2018 limited the like-kind exchange rule to real property (for example, a house or other real estate), so it doesn’t apply to cryptocurrency swaps.
- Paying for goods or services. This would be considered a sale of the cryptocurrency — typically equal in value to the cash fair market value of the good or service received.
- Being paid in cryptocurrency. If you receive payment in cryptocurrency for your goods, services, or employment, it’s the same as if you were paid in cash.
What Cryptocurrency Transactions Aren’t Taxable?
- Buying and holding. Buying cryptocurrency doesn’t create a taxable event on its own. A buy would only be taxable if you got the cash from something that is taxable. You also don’t pay taxes while you’re holding cryptocurrency. If the cryptocurrency goes up, the increase is only taxable upon sale or disposition.
- Charitable donations. If you donate cryptocurrency to a qualified charity or non-profit organization, you may be exempt from taxes on any untaxed gains. To do so, you need to carefully follow the IRS rules for how to complete the donation including not selling for cash before you donate.
- Transfers to yourself. If you transfer cryptocurrency between wallets or your own accounts, this is not a taxable event. Note that you must ensure that you transfer the actual cryptocurrency rather than selling it and rebuying it — even at the same price.
How Do You Determine Your Taxes for a Cryptocurrency Sale?
- Under the first-in, first-out (FIFO) method, you say you sold the first coin you bought. That’s the $1 coin, so your gain is $1 ($2 – $1).
- Under the last-in, first-out (LIFO) method, you say you sold the last coin you bought. That’s the $3 coin, so you have a $1 loss.
- Under the average-cost method, you take the average cost of all of your purchases. In this example, the average is $2, so you have no gain or loss.
- Under the specific-identification method, you can pick any of your three coins to sell just as if you had three physical items on a shelf and could grab any of them. You calculate your gain or loss based on whichever coin you chose.
- 0% applies if your income tax bracket is 10% or all but the highest income in the 12% bracket.
- 20% applies if your income tax bracket is 37%.
- 15% applies to everyone else.
What Can You Do If Your 1099-K Is Wrong?
What If I Already Filed My Tax Return Before I Got a 1099-K From Coinbase?
What If I Don’t Have Money to Pay the Taxes?
What If I Didn’t Report Cryptocurrency Gains in Previous Years?
What If the IRS Thinks I Earned More Than I Did?
Talk to a CPA About Your Coinbase 1099-K
Even if you now think cryptocurrency taxes sound simple, actually reading your 1099-K, figuring out where to get the other information you need, understanding if any unusual exceptions apply, and properly filling out the needed IRS forms can all be difficult tasks. Take the burden off your shoulders by consulting a tax professional at Founder’s CPA.
We specialize in cryptocurrency and other investment taxes and can help you pick a tax strategy that saves you money while making tax filing a breeze. If you’ve gotten a Coinbase 1099-K or are thinking about investing in cryptocurrency, contact us now for a free consultation.