What are 1099s?
1099s are forms filed with the IRS (users get a copy as well) that show how much income someone received during the year. They are filed by brokers - exchanges like Coinbase - to let both the IRS and the taxpayer know what income was earned on their platform so that taxpayers can correctly report the amount of income on their tax return.
The IRS uses these filed 1099s to make sure taxpayers are reporting the correct amount of income on their tax return.
It's important to note that any income, whether it is reported through a 1099 or not, is required to be reported on your tax return.
Because the crypto ecosystem is relatively new, there historically has been limited guidance on what 1099 reporting requirements many of these crypto brokers may have had.
For this reason, many crypto brokers historically have not issued 1099s - although that's changing with new legislation specifically outlining the rules and responsibilities that crypto brokers have for tax reporting.
Currently, some crypto brokers issue 1099s, and some do not. Starting in 2023, crypto brokers will be forced by law to issue 1099s.
Sometimes crypto activity occurs through decentralized finance (DeFi) protocols, and no centralized exchange or broker is used. This activity is still taxable, however there often isn't any entity that can file and report 1099s to the IRS, so no 1099s are filed for this activity.
Why doesn't CoinLedger produce 1099s?
CoinLedger is not a crypto broker, we help prepare tax reports that summarize your income from your crypto activity. Because of this, CoinLedger does not produce 1099s - it would be inappropriate for CoinLedger to do so. We aggregate all of the data across multiple wallets and exchanges to produce comprehensive tax reports.
What should I give to my accountant?
CoinLedger summarizes all your income types in the Taxable Income display of Step 4 within the app.
You can send those total amounts directly to your accountant. In addition, the Income Report provides a detailed list of each income distribution.
The reports produced by CoinLedger are all that is needed for someone to sufficiently report their crypto activity on their tax return. Please provide your accountant with the tax report and documents that CoinLedger produces upon completion of aggregating and reviewing all of your crypto activity.
In addition, your accountant may request from you all 1099s to verify the income reports that CoinLedger provides.
If your accountant is not very familiar with cryptocurrency, they may not know that 1099s do not always get filed.
They may be used to the traditional financial system in which income is almost always reported through 1099s - but as mentioned earlier in this help article, this is not always the case/is not always possible with cryptocurrency.
If a crypto broker you used did produce a 1099 - this should be provided to your accountant as well. If a 1099 was issued, it can be obtained directly from the crypto broker/exchange. Only the crypto broker will be able to provide one if it was filed.
If I give my accountant the income reports produced by CoinLedger in addition to 1099s, will I be double-counting income?
If a user correctly imports into CoinLedger all of their crypto transaction history, the income reports provided already include all taxable crypto income. Do not report income from both the CoinLedger income reports and your income from your 1099s, as the CoinLedger income reports include all of your crypto income, including any income that was reported through a 1099.
When providing your crypto income reports and your 1099s to your accountant, you should clarify that any crypto income reported through your 1099s is already included in the income reports provided by CoinLedger.
I provided the income reports produced by CoinLedger to my accountant, but they are still requesting more information. What can I give to them?
CoinLedger provides a thorough audit report that explains what taxable activity took place in more detail than is required to be reported on the tax return. This document is a good document to provide to your accountant if they are looking for more detailed information.
If your accountant requests source information directly from the crypto brokers you transacted with, provide to them a 1099 if that was issued, otherwise provide the transaction history .CSV files that are available through the exchange.
If you had taxable activity within DeFi, there likely is not a 1099 or a transaction history file to provide to them. If your accountant is looking for source data for these transactions you can provide them with your wallet address.
If your accountant is looking for clarity on why CoinLedger does not provide 1099s, or is looking for more clarity on 1099s within the crypto ecosystem, feel free to send them this help article.