This article is part of TokenTax's Crypto Tax Guide.
I got a Form 1099-K! Why is the number so large?
Many people have panicked upon receiving a Form 1099-K from their crypto exchange with numbers on it much larger than the profit they made.
There's no need to worry. Here's why:
The Form 1099-K from Celsius Network, Coinbase or Gemini states your cumulative crypto proceeds for the tax year: the total value crypto that you have bought, sold, or traded on the exchange.
The amount on the 1099-K does not represent your total capital gain or loss, and you don't need to include this document on your tax return.
Don't be alarmed if it's a much larger number than you'd expect, as it's merely a report of your trading volume to the IRS. If you trade often, you can have a very large trading volume while also not having that large of a gain or loss.
Ok, so why did the exchange send me a 1099-K?
For most U.S. states, if you had 200+ transactions and $20,000+ cumulative transaction volume on Coinbase Pro in 2018, then you likely received a Coinbase 1099-K. Celsius Network and Gemini have also sent out 1099-Ks.
As is the case for many tax forms, if you’ve received a Form 1099-K, so has the IRS. From this, the IRS knows that you have been trading cryptocurrency and thus you will likely be expected to report crypto on your tax return.
This form is also known as a Payment Card and Third Party Network Transactions form. It’s commonly used by credit card companies and payment processors like Paypal to report payment transactions that they've processed for third parties.
This is one of many recent new approaches that the IRS is taking to make sure that people are properly reporting digital currencies on their taxes.
What action do I need to take with the 1099-K?
The 1099-K doesn’t report individual transactions and capital gains. You still need to calculate your crypto taxes and file to report capital gains as you would normally do with crypto. You are responsible for reporting all crypto transactions — from all exchanges. If you fail to file, you may come under scrutiny of the IRS.