I am a tax attorney, here is the truth about 1099s and the $600 minimum threshold (for U.S. Taxpayers)

By April 1, 2014Bitcoin Business
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Hey guys, I've been seeing an alarming amount of confusion regarding 1099s and the $600 threshold mentioned in the recent IRS Notice. I hope this helps to clear some things up.

I should start off by saying that Form 1099 is an information return used to report certain types of payments that you make during the year. The idea is that the payment recipient might “forget” to include the payment in his taxable income at the end of the year, so requiring the payor to report the payment to the IRS will help make sure this doesn't happen. There are a variety of different Form 1099s depending on the type of payment involved, the details of which aren't really important for our purposes.

Here's the truth about Form 1099s and the $600 minimum threshold:

#1: Personal transactions are not covered

Form 1099s are required only for payments made in the course of a trade or business. You do not need to file a Form 1099 for personal transactions, like buying a new computer or a cup of coffee.

To be clear: If you are not engaged in a trade or business, you do not need to worry about filing a form 1099.

Even if you are engaged in a trade or business, you do not need to worry about filing a form 1099 unless the payment was made in the course of your business. Your personal transactions are never subject to 1099 reporting requirements. If you want to know if you're engaged in a trade or business (perhaps as a bitcoin miner), here is a brief discussion of the test for a trade or business used by the IRS.

#2: The $600 threshold has nothing to do with capital gains

There is no minimum threshold for reporting taxable gains. It doesn't matter if your gain is $0.50 or $500,000. Gain is gain, and if you are required to file an income tax return, you need to report all of your gains.

The $600 threshold refers only to the requirement for filing a Form 1099. Basically, the IRS understands that requiring a 1099 for every single payment made in the course of your business is too cumbersome. So, it requires a 1099 only if the aggregate of all payments to a particular business/person exceed $600 during the year. Again, this $600 is completely unrelated to how much gain/loss you might have on each payments.

#3: There is no special 1099 requirement for bitcoins.

The point of the IRS Notice was to confirm that bitcoin transactions are subject to the same 1099 requirements as fiat transactions. It did not create any new rules or special 1099 reporting requirements. So, if your payment would not be reportable on a 1099 if it was done in cash, then it is not reportable on a 1099 if it is paid in bitcoin either.

Feel free to ask any questions.

Legal Disclaimer

This post was created for general guidance on matters of interest only, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a tax professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post, and I do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this post or for any decision based on it.

CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

THE AUTHOR Tyson P. Cross is a tax attorney in San Diego, California. He can be reached at Tel: +1 619-786-0641 or Email: tyson@BitcoinTaxSolutions.com1 . (this information is necessary due to attorney advertising rules).

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