What is Crypto Form 1099-B?

I don’t want to report my crypto…

We understand that a lot of crypto holders began buying crypto not simply because they saw it as an investment, but because they saw it as a legitimate opportunity to separate themselves from fiat currency. Another big advantage was the idea that crypto is completely anonymous. Reporting your Bitcoin and Monero to the United States federal government kind of flies in the face of that, right?

These are understandable concerns. However, the truth is that the IRS already knows that you own crypto. It has a general idea of how much you own, when you bought it, if you sold any crypto, and the value of that crypto. In fact, the IRS knows this because of Form 1099-B. So the best course of action is to report your crypto.

What is Form 1099-B?

The IRS sent out Form 1099-Bs before April 15th to a variety of crypto exchanges. This includes the most popular exchanges like Binance and Coinbase. The exchange sends a report of the individual’s trades directly to the federal government. The intent behind this was to skyrocket crypto tax compliance, and it was a key strategy in the 2021 Infrastructure Bill.

A Form 1099-B refers to the proceeds from an exchange. Exchanges summarize their customers’ annual gains and losses for the IRS. These are then subject to capital gains taxes.

A Form 1099-B takes three forms: Copy A, Copy 1, and Copy B.

Copy A is filed by the exchange and sent to the IRS.

The exchange also files Copy 1, which is sent to whichever state the customer is in.

Finally, Copy B is sent to the customer (you) so you can file your taxes.

If your copy, Copy B, is different from Copy A, the IRS will immediately know that you are trying to commit crypto tax evasion.

This also means that if your Copy B is different from Copy 1, your state government will know you’re trying to commit crypto tax evasion.

Does Form 1099-B actually work?

When a taxpayer is directly mailed a Form 1099-B, which not only shows his capital gains but also notes that the IRS has a copy, the taxpayer hesitates to under report. In fact, noncompliance plummets to only 17% when taxpayers are shown a 1099-B.

The federal government has lost millions (if not billions) in tax revenue due to crypto enthusiasts’ lack of tax compliance. They are trying to change that with their IRS Document Matching Program. It is an upfront alternative to tax audits. This way, instead of finding fraud or inaccurate reporting months after the fact, the IRS can now catch people in just a few days.

Cryptocurrency trading has not been the first space in which Form 1099-B was enacted. The first to deal with it was actually Wall Street and the various stock brokers around the country. The IRS was just slow to implement it on crypto before the 2021 Infrastructure Bill.

Form 1099-B is incredibly effective, but there are a few methods that tax professionals use to minimize your tax burden.

How to lower your crypto taxes

Yoke Tax refuses to allow the IRS to take all of your crypto gains. There are severe consequences put in place for those who try to avoid giving the IRS its share… but who said the IRS deserved most of your money? There are many strategies which you can use today to legally minimize your tax burden. You might want to consult with a pro before implementing them all, but they do work.

Crypto loss harvesting is a very simple method that uses the very thing investors are trained to hate: loss. Everyone has experienced purchasing an altcoin with the hope that it’ll skyrocket in value, only to watch as it plummets just moments after you buy. This may just be a blessing in disguise, however. You can use your crypto losses to offset the total taxable gains that you earn through crypto. Learn exactly how to do it in this article.

In our article, How to Pay ZERO Crypto Taxes, we go over exactly what you need to know to solidify your control over as much of your crypto success as you can. This process can be difficult to put into action, however, so it is highly recommended that you consult with a tax professional before making such big financial decisions. This is the best way to save your money in the long run, rather than pay the IRS for little mistakes a tax pro with 20 years of experience could handle.

What about deductions?

There are a few legitimate deductions that you can use to cut down on your tax obligations. Unfortunately, the IRS scrutinizes individuals who list write-offs, deductions, and losses far more than it checks those who under-report income. It’s a cruel irony, indeed, but not an unsurprising one.

It isn't uncommon for the IRS to notice that people are trying to use obsolete sections of the tax code to deduct their tax obligations. Although the enthusiasm is there, the experience and knowledge certainly isn't. This is why it is so highly recommended that taxpayers connect with tax professionals before starting on their taxes.

Let Yoke Tax handle the numbers while you reap the benefits.