Documents & Tax Information

Who Receives a Form 1099-B?

If you sell a capital asset through a broker, you should expect to receive a Form 1099-B. Form 1099-B is primarily used to report gains or losses in connection with dispositions of capital assets. Currently, the IRS classifies cryptocurrency as property, which is considered a capital asset.

Why is a Form 1099-B Important to the Recipient? 

The importance of a Form 1099-B, and information contained on that form, is directly related to the upstream preparation of your Form 8949 and Form 1040, Schedule D.

Specifically, a Form 1099-B assists with determining an account holder’s capital gains taxes. When an account holder sells a capital asset for more than it cost at the time of acquisition, the profit is treated as a capital gain and may be taxable. However, if you sell a capital asset for less than the cost at acquisition, there is a capital loss. Capital losses potentially could be used to reduce other taxable capital gains.

What Information is on a Form 1099-B? 

Form 1099-B provides important information related to capital asset transactions facilitated by a broker. The information includes, but isn’t limited to the following:

• Description of the capital asset
• Date the asset was purchased or acquired
• Date the asset was sold and/or disposed
• Gains and/or losses calculated at the time of the transaction
• Classification of gains and losses as short-term or long-term
• Any related federal tax withheld at the time of the transaction

The official IRS copy of a Form 1099-B looks like this:

It’s very common for institutions to utilize a composite Form 1099-B, which appears similar to a brokerage statement, and is a consolidated copy of all capital asset transactions for the calendar year. A composite Form 1099-B will have all of the applicable individual boxes displayed on the official Form 1099-B.

Individuals must report the sales and disposition of capital assets on their Form 8949—as well as the total of their capital gains and losses on the Schedule D of Form 1040—on an annual basis.

The preparation of the Form 8949 is directly related to the information provided on the Form 1099-B, and the preparation of the Schedule D is directly related to the information on the Form 8949.

The Form 8949 and the Form 1040, Schedule D look like this:

 

 

Cost basis is the original value or purchase price of an asset or investment for tax purposes. Since cryptocurrency is currently treated as property (i.e. a capital asset) by the IRS; you're taxed not upon acquiring an asset, but rather when you dispose of an asset (sell it, trade it away etc.). The amount that you're taxed on is any resulting gain in value between the acquisition date and disposal date.

If we were to show how cost basis is used for calculating gains or losses for tax purposes, it would look like this:

Proceeds - Cost basis = Gains or Losses

Example: You buy 1 BTC on January 1st for $10,000. Four weeks later, you sell that 1 BTC for $12,000. You've realized a gain of $2,000. Your cost basis was $10,000, your disposal value was $12,000.

Currently, cost basis is not required to be reported to the IRS on a Form 1099-B. MIAXdx provides the cost basis information, where available, to our customers as a value-add for purposes of preparing your Form 8949. 

 

Please note that this requirement could change depending on the anticipated IRS regulations in response to the Infrastructure Bill. For more information on the Infrastructure Bill and the corresponding tax and reporting implications please see TaxBit’s article on how the Infrastructure Bill will impact information reporting for the crypto industry.

A common question that arises during a crypto transaction is “How do I calculate the cost basis?” When you sell property, existing tax regulations require you to apply the cost basis of that specific property against the proceeds received to calculate your gain or loss. However, this isn’t possible for fungible property like crypto because it lacks a specific identifier for each unit that could be used to specifically track when the unit was purchased and when that same unit was sold.

The IRS takes a similar approach to cryptocurrency cost basis as traditional equities and allows two methods for calculating cost basis when disposing of virtual currency:

• First-in, First-Out (FIFO)
• Specific Identification

What is FIFO?

First-in, First-out (FIFO) is a method of assigning the cost basis where the oldest unit of crypto you own is sold or disposed of first.

What is Specific Identification? 

Specific Identification permits a taxpayer to identify which units of crypto are being sold in a particular transaction. Under Specific Identification, a taxpayer can elect to dispose of higher cost basis assets first, which allows for greater tax optimization, but the IRS imposes additional requirements to use this method.

It’s important to note, IRS FAQ 40 explicitly requires a taxpayer using Specific Identification to have "records showing the transaction information for all units of a specific virtual currency… held in a single account, wallet, or address.” 

You can’t utilize Specific Identification with cost basis and sale proceeds for crypto from different wallets or exchanges; Specific Identification can only be utilized with transactions from the same wallet or exchange.

Additionally, to use Specific Identification, you must have complete records including:

• Date and time each unit was acquired
• Cost basis and value of each unit when it was acquired
• Date and time each unit was sold or disposed of
• Value of each unit when it was sold or disposed of

Specific Identification permits a taxpayer to identify which units of crypto are being sold in a particular transaction. Under Specific Identification, a taxpayer can elect to dispose of higher cost basis assets first, which allows for greater tax optimization, but the IRS imposes additional requirements to use this method.

It’s important to note, IRS FAQ 40 explicitly requires a taxpayer using Specific Identification to have "records showing the transaction information for all units of a specific virtual currency… held in a single account, wallet, or address.” 

You can’t utilize Specific Identification with cost basis and sale proceeds for crypto from different wallets or exchanges; Specific Identification can only be utilized with transactions from the same wallet or exchange.

Additionally, to use Specific Identification, you must have complete records including:

• Date and time each unit was acquired
• Cost basis and value of each unit when it was acquired
• Date and time each unit was sold or disposed of
• Value of each unit when it was sold or disposed of

Cryptocurrency taxes are extremely complex. We recommend that you consult your tax advisor for questions relating to your trading and derivative activity and the corresponding tax consequences. For more information on how to report cryptocurrency on your tax returns please see the TaxBit article here.

Your 2023 Tax documents will be available to download directly on the platform. 

You can access your tax documents at app.ledgerx.com/profile/documents or follow these steps: 

1. Login and go to Settings on the left-hand pane

2. Click Profile >Documents

3. Click "Download" to download your 1099 tax form

Note: Fair Market Valuation for 2023 Contracts will also be found on app.ledgerx.com/profile/documents

 

Closed position in 2023

Sept 1	Investor writes BTC Nov 25K call, receives premium
Oct 30	Investor buys back the BTC Nov 25K call, pays premium

 

Tax Treatment: Taxable gain or loss

 

Option Assigned in 2023 

Sept 1	Investor writes BTC Nov 25K call, receives premium
Nov 30	The BTC Nov 25K call is assigned (ITM). BTC Market price is 50K

 

Tax Treatment: Taxable gain or loss

 

Option Expires Worthless 2023 

Sept 1	Investor writes BTC Nov 75K call, receives premium
Nov 30	The BTC Nov 75K call is assigned (OTM). BTC Market price is 50K, option expires worthless

 

Tax Treatment: Taxable as gain or loss

 

Option open at end of 2023 

Sept 1	Investor writes BTC June 2023 75K call, receives premium
Dec 31	BTC market price is 50K. Call is open at end of year

 

Tax Treatment: Not taxable. There is no taxable action until the option is bought back, exercised or expired.

 

Closed position in 2023 

Sept 1	Investor writes BTC Nov 50K put, receives premium
Oct 30	Investor buys back the BTC Nov 50K put, pays premium

 

Tax Treatment: Taxable as gain or loss

 

Option Assigned in 2023 

Sept 1	Investor writes BTC Nov 75K put, receives premium
Nov 30	The BTC Nov 75K put is assigned. BTC Market price is 50K

 

Tax Treatment: Taxable as gain or loss

 

Option Expires Worthless 2023 

Sept 1	Investor writes BTC Nov 25K put, receives premium
Nov 30	The BTC Nov 25K expires worthless

 

Tax Treatment: Taxable as gain

 

Option open at end of 2023 

Sept 1	Investor writes BTC June 2023 50K put, receives premium
Dec 31	BTC market price is 25K. Put is open at end of year

 

Tax Treatment: Not taxable. There is no taxable action until the option is exercised or expired.

Closed position in 2023 

Sept 1	Investor buys BTC Nov 25K call, pays premium
Oct 30	Investor sells BTC Nov 25K call, receives premium

 

Tax Treatment: Taxable as gain or loss

 

Option Assigned in 2023 

Sept 1	Investor buys BTC Nov 25K call, pays premium
Nov 30	The BTC Nov 25K call is exercised. BTC Market price is 50K

 

Tax Treatment: Taxable as gain or loss with additional tax consequences for the underlying asset which will vary depending on a call versus a put.

 

Option open at end of 2023

Sept 1	Investor buys BTC June 2023 25K Call, pays premium
Dec 31	BTC Market price is 50K, call is open at end of year

 

Tax Treatment: Taxable as gain. *Note, this is a special consequence from being a Section 1256 contract. The contract is deemed sold and gain or loss is recognized at the end of year, which is what is commonly called “mark to market.” The unrealized gain or loss which can be found in Box 10 will be reversed in the following year in Box 9. 

 

Sept 1	Investor buys BTC Future
Dec 31	The BTC Future is exercised and BTC is Purchased

 

Tax Treatment:  Not taxable. The purchase of crypto alone is not a taxable event. 

Sept 1	Investor writes a BTC Future
Dec 31	The BTC Future is exercised and investor sells BTC

 

Tax Treatment:  Taxable as gain or loss - specific to the asset (i.e. BTC)  

Sept 1	Investor buys a BTC Future
Nov 1	Investor sells the BTC Future

 

Tax Treatment:  Taxable as gain or loss - specific to the future contract and not the asset (i.e. BTC)

 

Sept 1	Investor writes a BTC Future
Nov 1	Investor buys back the BTC Future

 

Tax Treatment:  Taxable as gain or loss 

Sept 1	Investor buys a Next Day BTC Swap at 3:30 pm ET
Sept 1	At 4:00 pm ET, the Next Day BTC Swap is exercised and BTC is purchased

 

Tax Treatment:  Not taxable. The purchase of crypto alone is not a taxable event. 

Sept 1	Investor writes a Next Day BTC Swap at 3:30 pm ET
Sept 1	At 4:00 pm ET, the Next Day BTC Swap is exercised and investor sells BTC

 

Tax Treatment:  Taxable as gain or loss