Understanding Form 1099-B and Crypto Broker Reporting Rules

May 22, 2025
Understanding Form 1099-B and Crypto Broker Reporting Rules

Introduction

With increased IRS enforcement on cryptocurrency transactions, many crypto investors and traders now receive Form 1099-B from crypto exchanges. This form reports capital gains, losses, and transaction details to both taxpayers and the IRS.

New crypto broker reporting rules introduced under the Infrastructure Investment and Jobs Act (IIJA) require exchanges to track and report transactions more closely, ensuring compliance. Understanding these changes is crucial for accurate tax filing and avoiding IRS penalties.

 

This article explains what Form 1099-B is, how it applies to crypto transactions, and what self-employed individuals and investors need to know about the new IRS reporting rules.

 

1. What is Form 1099-B?

Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) is used by brokers and crypto exchanges to report sales of assets, including stocks, securities, and now cryptocurrency.

A. What Does Form 1099-B Report?

  • Proceeds from crypto sales (total dollar value received).
  • Date of acquisition and sale.
  • Cost basis (purchase price of the asset).
  • Short-term vs. long-term capital gains/losses.
  • Transaction fees (may or may not be included).

B. Who Receives Form 1099-B?

  • Anyone who sells, trades, or disposes of crypto through a U.S.-based exchange may receive Form 1099-B.
  • Exchanges like Coinbase, Kraken, and Gemini now issue Form 1099-B to users and report it to the IRS.
     

2. IRS Crypto Broker Reporting Rules (2023-2025 Changes)

The Infrastructure Investment and Jobs Act (IIJA), passed in 2021, expanded IRS reporting rules for crypto brokers.

A. Key Changes to Crypto Reporting

  1. Brokers Must Report Crypto Transactions
    • Crypto exchanges, trading platforms, and NFT marketplaces are now required to report customer transactions to the IRS
  2. New Form 1099-DA for Crypto (Starting 2025)
    • A new Form 1099-DA will be introduced specifically for digital asset transactions.
    • This form will replace 1099-B for crypto in future tax years.
  3. Cost Basis Reporting Now Mandatory
    • Exchanges must report the cost basis of sold crypto, ensuring accurate gain/loss calculations.

 

3. How to Use Form 1099-B for Crypto Taxes

A. Reporting Capital Gains and Losses on Taxes

  • Crypto transactions reported on Form 1099-B must be included in Schedule D and Form 8949 of Form 1040.
  • Tax treatment depends on holding period:
    • Short-term gains (held <1 year): Taxed at ordinary income rates (up to 37%).
    • Long-term gains (held >1 year): Taxed at preferential rates (0%, 15%, or 20%).
  • If cost basis is missing, taxpayers must manually calculate it using trade history records.

B. What If You Don’t Receive a 1099-B?

  • Not all crypto platforms issue 1099-B. If you don’t receive one, you must manually track transactions and report gains/losses.
  • Use crypto tax software like CoinTracker, Koinly, or TokenTax to generate transaction reports.
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4. Avoiding IRS Crypto Tax Penalties

A. Verify 1099-B Accuracy Before Filing

  • Compare Form 1099-B details with your own transaction records.
  • If discrepancies exist, request a corrected 1099-B from the exchange.

B. Report All Crypto Activity (Even Without a 1099-B)

  • The IRS tracks crypto transactions using blockchain analytics (e.g., Chainalysis).
  • Failing to report taxable crypto activity can lead to penalties of up to 25% on unpaid taxes

C. Answer the IRS Crypto Question on Form 1040

  • Taxpayers must answer “Yes” or “No” to the IRS question:
    • “Did you receive, sell, exchange, or otherwise dispose of any financial interest in virtual currency?”
  • Incorrectly answering "No" when taxable crypto activity occurred can trigger IRS audits.
     

Conclusion

With stricter IRS reporting rules, U.S. taxpayers must accurately report crypto sales and trades using Form 1099-B. The introduction of Form 1099-DA in 2025 will further tighten reporting requirements.

To avoid IRS penalties, crypto investors and freelancers should track transactions, verify 1099-B data, and report all taxable crypto events. Tax Partners can assist with crypto tax compliance, IRS reporting, and tax-efficient investment strategies.

 

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