Cryptocurrencies are taxed as property according to the IRS Notice 2014-21.
. This tax treatment leads to taxable events each time you cash out, spend or exchange one cryptocurrency with another. Earning interest, staking rewards, mining income and receiving airdrops are also taxable events.
This form will report your activity by month. Note that the information reported in this form is not necessarily helpful when it comes to filing your taxes. This is because this form reports your cryptocurrency profits on a gross basis without taking cost basis into consideration.For example, say you purchased 1 bitcoin for $10,000 and sold it for $30,000 during 2021. Form 1099-K would report $30,000 as opposed to the actual taxable gain of $20,000 .
If this is the case, it is highly recommended to use a crypto tax software to reconcile your cryptocurrency activity across multiple exchanges & wallets and arrive at the correct capital gain amount which you have to pay taxes on. Schedule D summarizes what you reported on Form 8949. This schedule will also show your stocks & security gains & losses.The amounts reported to you by an exchange on the Form 1099-MISC discussed above would go on line 8z of Schedule 1. Also, if you claimed any airdrops during 2021, ex:- Last but not least, make sure to answer the cryptocurrency question on the front and center of the Form 1040.
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