It is pretty normal for online services that accept payments for trades or business, such as PayPal or Stripe, to send out a 1099-K. This details the gross income received through their payments system on behalf of the business.

This would be included as part of the gross income in reported tax forms. Although the business then also reports business costs and expenses to calculate the net income to make up taxable income, for which they ultimately pay taxes.

Coinbase also sends 1099-K for their merchant accounts if they received payments in BTC (or immediately converted to USD) over the 200 transactions or $20,000 thresholds.

What's surprising a number of people this year is that Coinbase, GDAX, Gemini, and perhaps other exchanges, are also sending a 1099-K where the number of trades on their exchange platform exceeds these thresholds. Essentially, if you made more than 200 trades or the total amount traded was over $20,000.

This form is sent to the individual and also the IRS.

But since the 1099-K only includes trade sales, the gross amounts can be in the hundreds of thousands, or millions. This is understandably causing some internet flutters and people commenting, "Do I have to pay taxes on that?" or "I don't have that much!".

Firstly, you should verify that the figure is correct. Some users on reddit are reporting they had no where near the threshold amounts. If so, Coinbase's 1099-K information page has details on how you should contact them.

You should also pass this form over to your own tax professional for correct advice on how you should report this information.

For businesses, this total value would normally be included in their tax forms. For example, a self-employed taxpayer would include this as part of their declared Gross receipts or sales on Line 1 of their Schedule C.

However, for most individuals, this is just an indication of the proceeds they have received from their trading. And since all trades must be reported as part of their capital gains reporting in Schedule D, this figure is going to be included within the total proceeds of sales of assets totaled in column (d) of Form 8949 and Schedule D.

What could therefore cause a flag with the IRS is if you report less proceeds than was reported on all your 1099-K forms, since it could indicate you have not reported all your trading.

Be sure to collect all your trading activity so you can calculate and report your trading proceeds, costs and gains.

You can signup for an account at Bitcoin.Tax to import your trading activity and we will calculate your gains and estimated taxes.

If you need some tax advice or help with filing in your tax forms, you can contact our partners at CryptoTaxPrep that provide a complete tax preparation service backed with the power of the Bitcoin.Tax system.

Bitcoin.Tax is leading capital gains calculator for digital currencies for US and worldwide users, traders and investors. You can try Bitcoin.Tax at https://bitcoin.tax/signup.

This post is the opinion of the author and not financial or tax advice. Please speak to your own expert, CPA or tax attorney on how you should treat taxation of digital currencies. A list of Bitcoin and digital-currency knowledgeable accountants can be found at https://bitcoin.tax/cpa.