How is Crypto Reported to the IRS?

Under the broker information reporting rules, brokers must report transactions in securities to both the IRS and the investor on Form 1099-B. It encompasses cryptocurrency exchanges, custodians, or platforms (e.g., Coinbase, Gemini, or Binance), and digital assets, such as cryptocurrency (e.g., Bitcoin, Ether, or Dogecoin).

 

Legislation is also extended to existing cash reporting rules (for cash payments of $10,000 or more) to cryptocurrency, so that businesses that accept payments of $10,000 or more in cryptocurrency will have to report that to the IRS (on IRS Form 8300).

 

Existing Broker Reporting Rules

Under current rules, if you have a stock brokerage account, then whenever you sell stock or other securities, you receive a Form 1099-B at the end of the year. On that form, your broker reports details of transactions, such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses.

 

Furthermore, under the “broker-to-broker” reporting rules, if securities are transferred from one broker to another broker, then the old broker must furnish a statement with relevant information, such as tax basis, to the new broker.

 

This includes most cryptocurrencies, and some non-fungible tokens (NFTs). Thus, any platform on which you can buy and sell cryptocurrency will have to report digital asset transactions to the IRS and to you at the end of each year.

 

Digital Assets Defined

Digital assets” are electronic files of data that can be owned and transferred by individuals, used as a currency to make transactions, or as a way of storing intangible content, such as computerized artworks, video or contract documents.

 

Cash transaction reporting on Form 8300 will apply to cryptocurrency. Under a set of rules separate from the broker reporting rules, when a business receives $10,000 or more in cash in a transaction, that business must report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. For this cash reporting requirement, businesses will have to treat digital assets like cash.

 

IRS’s Form 8300 also requires the reporting of the identifying information of the individual from whom the cash was received-including address, occupation, and taxpayer identification number, as well as other information. It may be difficult for businesses seeking to comply with the post-2022 reporting rules for more than $10,000 in cryptocurrency to collect the information that must be reported on Form 8300.

 

What You Should Know

If you use a cryptocurrency exchange or platform, and it has not collected a Form W-9 from you, expect it to do so.

 

Cryptocurrency exchanges and platforms, in addition to collecting information from their customers, will need to begin tracking the holding period and the buy and sell prices of the digital assets in customers’ accounts.

 

Be aware that the transactions subject to the new reporting rules will include not only the selling of cryptocurrencies for fiat currencies (government-issued currency, such as the U.S. dollar) but also exchanges of cryptocurrencies for other cryptocurrencies.

 

Finally, it’s good to keep in mind that the cryptocurrency exchanges or platforms will probably not have all the information they need to meet their reporting requirements under the new rules. This may make the first year of reporting for digital assets challenging for investors, as well as exchanges and platforms.

 

If you need help with your reporting requirements, give me a call.

 

You Might Also Like

Did you like this article?

Get notified when I publish new articles. Just enter your email address below.

About the Author

Eric Sheldon

Eric Sheldon

Eric Sheldon is a certified public accountant with more than 25 years of experience in a wide variety of industries. He's the owner/operator of Eric Sheldon CPA, PC, an accounting firm that specializes in providing tax strategy and preparation, accounting, and bookkeeping services to individuals and small business owners.

More information:

Understanding Tax Underpayment Penalties: A Simplified Guide

Navigating through the complex world of taxes can be a daunting task, particularly when it comes to understanding potential penalties associated with underpayment of taxes. In essence, an underpayment penalty is a fine imposed by the Internal Revenue Service (IRS) on individuals who do not pay enough of their total tax liability throughout the year.

Read More »

The Top 10 Key Factors Every Pass-Through Entity Needs to Know

In the dynamic world of business, it’s vital to comprehend the tax implications associated with your chosen business structure. This is especially true for pass-through entities, where the tax landscape is complex yet ripe with opportunities for strategic planning. If you’re a proprietor, partner, or shareholder in a pass-through entity, such as an S Corporation,

Read More »

The SALT Cap Workaround for Pass-Through Entities

In response to complaints about the Tax Cuts and Jobs Act of 2017 SALT cap, many states have authorized workarounds that allow a pass-through entity to pay state income taxes at the entity level. The entity deducts the payments and passes them to the individual owner as deductions or credits, bypassing the SALT cap at

Read More »

Understanding Tax Underpayment Penalties: A Simplified Guide

Navigating through the complex world of taxes can be a daunting task, particularly when it comes to understanding potential penalties associated with underpayment of taxes. In essence, an underpayment penalty is a fine imposed by the Internal Revenue Service (IRS) on individuals who do not pay enough of their total tax liability throughout the year.

Read More »

The Top 10 Key Factors Every Pass-Through Entity Needs to Know

In the dynamic world of business, it’s vital to comprehend the tax implications associated with your chosen business structure. This is especially true for pass-through entities, where the tax landscape is complex yet ripe with opportunities for strategic planning. If you’re a proprietor, partner, or shareholder in a pass-through entity, such as an S Corporation,

Read More »

The SALT Cap Workaround for Pass-Through Entities

In response to complaints about the Tax Cuts and Jobs Act of 2017 SALT cap, many states have authorized workarounds that allow a pass-through entity to pay state income taxes at the entity level. The entity deducts the payments and passes them to the individual owner as deductions or credits, bypassing the SALT cap at

Read More »