Do You Need to File a 1099-B for Crypto Trades?
Understand when a 1099-B is required for crypto trades, who provides it, and how to report transactions accurately to stay compliant with tax regulations.
Cryptocurrency trading has tax implications, and the IRS requires traders to report their gains and losses. One form that may come into play is the 1099-B, which brokers issue for certain transactions. However, crypto taxation rules have been evolving, leaving many unsure whether they need this form for their trades.
Understanding when a 1099-B applies to cryptocurrency ensures compliance and helps avoid penalties.
Purpose of 1099-B
The 1099-B reports proceeds from brokered transactions, documenting taxable events for the IRS. It includes acquisition and sale dates, cost basis, and gross proceeds to determine capital gains or losses. These are taxed as short-term (held for one year or less) or long-term (held for more than a year).
For stocks and bonds, brokers must issue a 1099-B to both the IRS and the taxpayer, simplifying tax reporting and reducing errors. Without it, individuals must manually track trades, which can be cumbersome for frequent traders.
The IRS uses 1099-B data to cross-check tax returns. Discrepancies may trigger audits or additional tax assessments. The form also accounts for adjustments like wash sales, preventing taxpayers from claiming artificial losses by repurchasing the same asset within 30 days.
Who Must Provide It
Cryptocurrency exchanges that qualify as brokers under IRS regulations must issue Form 1099-B for taxable transactions. The Infrastructure Investment and Jobs Act of 2021 expanded the definition of a broker to include digital asset platforms facilitating trades for customers. Major U.S.-based exchanges like Coinbase, Kraken, and Gemini are expected to comply.
Decentralized exchanges (DEXs) and peer-to-peer transactions do not fall under the same mandate since they lack an intermediary responsible for recordkeeping. Brokers must issue a 1099-B when a user sells or exchanges digital assets to ensure proper documentation.
Historically, crypto exchanges had no standardized reporting obligations, making tax calculations difficult. Updated rules require exchanges to provide cost basis information when available, helping users determine tax liabilities more accurately.
Filing Method
When a cryptocurrency exchange issues a 1099-B, taxpayers must report the information on IRS Form 8949, which tracks capital asset sales. Transactions must be categorized as short-term or long-term, as tax rates differ. Short-term gains are taxed as ordinary income, while long-term gains range from 0% to 20% in 2024, depending on taxable income.
The totals from Form 8949 are transferred to Schedule D of Form 1040, consolidating all capital gains and losses. If an exchange does not provide cost basis information, taxpayers must determine it independently.
Those using multiple exchanges must aggregate transactions to ensure complete reporting. The IRS expects all taxable events to be accounted for, even if no 1099-B is received.
Reporting Crypto Trades
The IRS treats digital assets as property, meaning each taxable event—whether a sale, exchange, or use of crypto for goods and services—must be reported based on fair market value at the time of the transaction. Using Bitcoin for a purchase creates a taxable event where the difference between acquisition cost and spending value determines the gain or loss.
Crypto transactions often involve transfers between wallets or exchanges. While these are not taxable, they must be tracked to establish cost basis and holding periods.
Staking rewards, mining income, and assets from hard forks are taxed as ordinary income upon receipt. When sold, capital gains tax applies based on the difference between the sale price and the reported income value.
Decentralized finance (DeFi) transactions complicate reporting, as lending, liquidity provision, and yield farming generate taxable income, often without clear documentation. Taxpayers must track these manually or use crypto tax software to ensure accuracy.
Missing or Incorrect Documents
Errors or missing 1099-B forms complicate tax filing, especially for cryptocurrency traders. If an exchange fails to issue the form or provides incorrect information, taxpayers should contact customer support for a corrected version. Many platforms allow users to download transaction histories as a backup.
If a corrected form is not available before filing, taxpayers must reconstruct their transaction history using blockchain explorers, account statements, or crypto tax software. The IRS expects all taxable events to be reported, even without a 1099-B. Filing without the form requires manually calculating cost basis, sale proceeds, and holding periods, which can be complex for high-volume traders.
Keeping detailed records of trades, transfers, and receipts helps prevent discrepancies that could trigger an audit. If an incorrect 1099-B has already been filed with the IRS, taxpayers may need to submit an amended return using Form 1040-X.
Consequences of Non-Filing
Failing to report cryptocurrency transactions or omitting a required 1099-B can lead to IRS penalties, interest charges, and audits. The agency has increased enforcement efforts, sending warning letters to taxpayers whose reported income does not match third-party data.
Underreporting gains can result in accuracy-related penalties of 20% of the understated tax liability, plus interest. Willful tax evasion carries fines up to $250,000 and potential imprisonment.
Repeated failures to report crypto income increase audit risks. The IRS partners with blockchain analytics firms to track unreported transactions, making it harder to conceal gains. To avoid penalties, individuals should ensure all taxable events are properly documented and reported, even if no 1099-B is received.