Why Is My Coinbase 1099-B Asking for Additional Information?

Cryptocurrency trading has become increasingly popular, leading to more individuals receiving tax forms like the 1099-B from platforms such as Coinbase. This document is crucial for reporting capital gains and losses on your tax return. However, it can sometimes request additional information, which may confuse recipients.

Understanding why this data is needed is essential for accurate tax filing. Let’s explore what prompts these requests and how to address them effectively.

How Coinbase Issues 1099-B

Coinbase, a major cryptocurrency exchange, complies with IRS regulations by issuing Form 1099-B to users. This form reports proceeds from digital asset transactions, which are considered property for tax purposes. The IRS’s increased focus on cryptocurrency has prompted Coinbase to help users accurately report taxable events.

Coinbase tracks transactions throughout the year, including buys, sells, exchanges, and conversions. It records transaction dates, types, amounts, and proceeds to calculate capital gains or losses, which are reported on the 1099-B. Using algorithms, Coinbase determines the cost basis of each transaction — the original value of the asset, adjusted for fees and commissions. It matches transactions to ensure cost basis accuracy, following IRS guidelines.

Data Fields and Transaction Details

The Coinbase 1099-B includes data fields essential for calculating tax obligations. It captures acquisition and disposition dates, cryptocurrency quantities, and fair market values at the time of transactions. These details determine the holding period, indicating whether gains are short-term or long-term.

The form reports proceeds from sales or exchanges, representing gross amounts before fees. This helps the IRS assess income from cryptocurrency activities. It may also specify transaction types to assist in categorizing taxable events.

Cost basis information is critical for determining net gains or losses. It reflects the original purchase price, adjusted for fees. Discrepancies in this data can affect tax liability, so users should verify the information against their records. While Coinbase’s algorithms aim for accuracy, users should double-check for errors.

Summarizing Gains and Losses

Summarizing gains and losses on the Coinbase 1099-B requires understanding how each transaction impacts your tax liability. Short-term gains, from assets held for a year or less, are taxed at ordinary income rates (10% to 37%). Long-term gains, from assets held longer, are taxed at reduced rates of 0%, 15%, or 20%.

Accurate categorization of transactions is crucial. The IRS allows offsetting gains with losses, up to $3,000 annually for individuals, with excess carried forward. This reduces taxable income, so maintaining precise records is essential. Tax-loss harvesting can be beneficial but must avoid the “wash sale” rule, which disallows a loss deduction if a similar asset is repurchased within 30 days.

Reconciling Cost Basis

Reconciling the cost basis of cryptocurrency transactions involves aligning your records with Coinbase’s data. The cost basis is the foundation for calculating gains or losses. Given cryptocurrency volatility, maintaining accurate purchase records, including fees and adjustments, is essential to ensure the cost basis on the 1099-B matches your actual expenses.

Complex scenarios like wallet transfers, hard forks, or airdrops may require adjusting the cost basis. For example, a hard fork results in a new cryptocurrency with a cost basis equal to its fair market value at acquisition. Accurate figures prevent discrepancies that could lead to audits or penalties for underreporting gains.

Dealing With Missing or Incorrect Info

When reviewing your Coinbase 1099-B, you may find missing or incorrect information. These issues often arise from incomplete transaction histories, cost basis errors, or misclassified transaction types. Resolving these problems ensures accurate tax returns and avoids penalties.

To address missing information, cross-reference the 1099-B with your personal transaction records, such as wallet histories and blockchain data. For example, if a wallet transfer is misclassified as taxable, use blockchain explorers to verify it was non-taxable. If cost basis data is missing, calculate it manually using the original purchase price and fees. Crypto tax software can help consolidate data from multiple sources for accurate reporting.

For incorrect information, contact Coinbase support with detailed documentation, like transaction IDs and timestamps, to support your claims. Coinbase may not recognize off-platform transactions, such as decentralized exchange trades or private wallet transfers. In these cases, provide accurate data to reconcile discrepancies. Failure to address these issues could result in underreporting income and potential audits.

Filing Tax Returns With the 1099-B

Once your 1099-B is accurate, integrate its data into your tax return carefully. Report the information on Schedule D and Form 8949, which summarize capital gains and losses. Categorize each transaction as short-term or long-term and transfer totals to Schedule D. Consistency between these forms and the 1099-B is critical, as discrepancies could flag your return for review.

Account for adjustments required under IRS guidelines. For instance, staking rewards or mined cryptocurrency are treated as ordinary income and must be reported separately. Expenses related to cryptocurrency activities, such as transaction fees or software costs, may be deductible within IRS limitations. Proper documentation of these adjustments can reduce taxable income and ensure compliance.