Are you trying to figure out which U.S. cryptocurrency tax form you need? Tax forms 8949, 1099, and 1040 are good places to start.
Nearly all virtual currency transactions have tax implications. Trading your litecoin for bitcoin? Taxable. Buying groceries with your crypto debit card? Taxable. Buying an NFT with ethereum? Taxable.
As you can tell, cryptocurrency taxes can get complicated fast, and figuring out every necessary cryptocurrency tax form can be a hassle, especially if you’re not using a cryptocurrency tax automation software like TaxBit. To make it easier for you, we’ve put together this comprehensive guide on cryptocurrency tax forms.
The purpose of Form 8949 is to report the sale, exchange, or other disposition of capital assets. These include assets like real estate, cars, stocks, and convertible virtual currency (see our cryptocurrency glossary for more definitions).
If you sold virtual currency during the tax year, you’ll need to use Form 8949 to report the sales (whether or not you made a profit) if any of the following apply:
Form 8949 allows taxpayers to reconcile the amounts they report to the IRS with the amounts reported by brokers through Forms 1099-B. If your tax return shows something other than what the IRS expects, you’ll need to explain the differences on Form 8949.
If you agree with all of the amounts that your brokers reported on 1099-B (including cost basis, proceeds or fair market value, and capital gain or loss) and everything on your tax return matches those amounts, then you may not need to file Form 8949.
You can simply aggregate all crypto transactions (whether they’re all, say, bitcoin transactions or a mix between one currency and another) and only report the total on Schedule D if all of the following apply:
If you need to complete IRS Form 8949, you can find the full instructions on the IRS website. Or, if you’re a TaxBit member, our crypto tax software can simplify the process by automatically aggregating your Forms 1099-B and generating Form 8949 for you.
Form 1099-B is what brokers use to report the sale of assets like stocks, commodities, contracts, and cryptocurrencies. They’re required to send a copy to the taxpayer and the IRS.
If you had any taxable virtual currency transactions on an exchange (such as selling, trading, or making purchases with crypto) during a tax year, they should send you a 1099-B for each one. It will state the cost basis, proceeds (fair market value), and the capital gain or loss.
Taxpayers aren't required to fill out the form themselves or send it to the IRS. Those are the broker’s responsibility. However, each 1099-B you receive will help you fill out your 8949 cryptocurrency tax form (if necessary) and your Schedule D.
Our tax software can help both companies that issue 1099-Bs and the cryptocurrency owners that use them to file their income tax returns. You can pull in details from any cryptocurrency exchange, such as Coinbase, Gemini, Uphold, and many more.
Form 1099-MISC serves many purposes and is used for miscellaneous income sources.
In relation to cryptocurrency income, exchanges who pay you more than $600 in a year (other than W-2 wages) must send you and the IRS 1099-MISC detailing the taxable income. This includes any income earned from mining, staking, income from marketing, referral income, and interest on deposits.
You’re responsible for reporting the income on your 1099-MISCs to the IRS. If there are discrepancies between their expectations and your income tax return, they will investigate. If you severely underreport, they may suspect tax evasion and audit you.
Our tax reporting software can make handling 1099-MISCs pain-free. When you link TaxBit to your crypto exchanges, the software will automatically pull your 1099-MISC details, make the necessary calculations, and generate your crypto tax forms.
Tax Form 1040 is one of the most important forms to understand—it includes your taxable income from all sources for the tax year and calculates your final income tax liability. To make the process easier, the IRS splits the form into schedules for various types of income.
Schedule D is for reporting your capital gains and losses, which is equal to the difference between the cost basis of an asset (including virtual currency) and the proceeds (its fair market value) generated by the sale.
Your cryptocurrency tax rate depends on whether you held the capital asset for more than a year (long-term capital gain) or less than a year (short-term capital gain). The long-term capital gains tax is more favorable.
Keep in mind that using your virtual currency to purchase something is equivalent to selling it. It is a taxable event and will generate a capital gain or loss, just like selling it for real currency.
In 2019, the IRS added the following question to the top of Form 1040: Schedule 1: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
They intended to prevent people from forgetting or otherwise failing to report their cryptocurrency investment activities. The IRS has since moved that question to the front of Form 1040.
You should still use Schedule 1 to report ordinary income from forks and airdrops or when you receive cryptocurrency as wages. There’s no box dedicated purely to virtual currency on the form yet, but you can report the income on Line 8.
To continue learning about Cryptocurrency Tax Basics, see the additional articles in the series:
Cryptocurrency taxes are complicated, and the documentation requirements are only becoming more intense. The stakes are getting higher, too, as the crypto asset class becomes more mainstream and the IRS cracks down on the reporting requirements.
TaxBit takes all the stress out of reporting cryptocurrency taxes by automating the entire process, from issuing tax forms to year-round portfolio optimization, historical filing of previous years, and CPA reviews.
With TaxBit’s real-time portfolio tracking and tax optimization tools, it’s easy to lower your tax liability—and potentially increase your tax refund. If you’re a crypto investor interested in seeing what TaxBit can do for you, get started today with our free trial!