Coinbase will change the form of tax reporting for US customers.
Coinbase decided to stop sending customers in the United States a tax form of 1099-Ks, due to which the US Tax Service (IRS) mistakenly believed that traders underestimate their profits.
According to an article on the Coinbase exchange blog, instead of the 1099-Ks form, the 1099-MISC form will now be used, 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 are likely not to receive tax forms from Coinbase to prepare for tax payments.
On the blog, Coinbase said it would not release the IRS 1099-K form for the 2020 tax year. The 1099-K form used by some cryptocurrency exchanges to report transactions to users often contains misleading information, since it indicates only gross income from cryptocurrency transactions without taking into account the base price.
Therefore, according to the data on the form, sometimes all transactions can be displayed as generating income, even if some of them have resulted in losses. This leads to the fact that the exchange transmits data on a significantly overstated tax burden for the user.
Recently, many cryptocurrency investors received another “letters of happiness” from the IRS, in which the agency demanded the payment of excessive tax on cryptocurrency revenues. Cryptocurrency investors have already received similar letters last year and in the middle of this year. TaxBit co-founder Justin Woodward said users received the letters as exchanges reported transactions to the IRS using the 1099-K form.
In an article on the blog, Coinbase announced that it would also not release 1099-B forms. At the same time, 1099-MISC forms will be sent to users who earn “from $600 in cryptocurrency as part of Coinbase Earn, USDC rewards and/or stealing in 2020.”
However, the exchange’s statement does not specify whether, in the absence of a form of 1099-K, regular sales of cryptocurrency and in 1099-MISC forms will be registered. According to the article, customers 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 specialists.
If 1099-MISC becomes the standard for traders, “a lot more people will get it because the threshold for getting 1099-MISC is very low,” said Shehan Chandrasekera, head of tax strategy at CoinTracker. While 1099-K is intended exclusively for customers receiving more than 200 transactions a year worth more than $20 000, 1099-MISC covers everyone whose income is $600 or higher.