Cryptocurrency investors will face new reporting requirements under the U.S. Internal Revenue Service (IRS). These changes mark a significant shift in how crypto transactions will be tracked and reported, especially for investors using centralized platforms such as Coinbase, Gemini, and others. Centralized exchanges will be required to report detailed transaction information to the IRS, affecting how digital assets are taxed.
As part of an effort to ensure greater tax compliance, the IRS is implementing new reporting standards for centralized cryptocurrency exchanges. Beginning in 2025, these platforms, including custodial wallet providers and certain payment processors, will be mandated to submit transaction data through a new form: the 1099-DA. This form will include a comprehensive record of digital asset purchases, and transfers.
The 1099-DA will be sent to both the investor and the IRS by early 2026, meaning that all crypto investors will need to include this information in their 2025 tax filings. This change is designed to reduce discrepancies between taxpayers’ reported figures and the IRS’s records, as the agency will already have access to transaction data.
While the new reporting rules will apply to all crypto transactions starting in 2025, reporting the cost basis—the original purchase price of a digital asset—will not be required until the 2026 tax year. For investors, this delay could lead to complications, especially since cost basis is crucial for determining gains or losses on sold assets.
Jessalyn Dean, Vice President of Tax Information at Ledgible, highlighted that this delay might make it more difficult for investors to accurately calculate their taxable gains and losses for 2025. As the IRS will already have transaction data, investors will need to maintain their own records or use tax software to ensure accurate reporting.
While centralized exchanges will be required to comply with these reporting standards in 2025, decentralized platforms such as Uniswap and Sushiswap are not expected to implement third-party reporting until 2027. These platforms will only be required to report the gross proceeds of transactions, not the cost basis, due to the lack of access to original purchase prices. This difference highlights the challenges faced by decentralized finance (DeFi) platforms, which do not have the same oversight as centralized exchanges.
In addition to centralized exchanges, the IRS’s new reporting requirements will also apply to Bitcoin exchange-traded funds (ETFs). Bitcoin ETF providers will issue forms like the 1099-B or 1099-DA, which will cover the proceeds from any within the ETF, as well as any taxable events that occur inside the fund.
Investors holding Bitcoin ETFs are urged to seek professional tax advice, as there may be tax implications from internal management activities within the fund, even if the assets are held long-term. Understanding these tax responsibilities is crucial for avoiding unexpected tax bills.
In the lead-up to the implementation of the new reporting rules, the IRS recently declared automatic relief for users of centralized finance (CeFi) platforms. This relief allows users to delay taking action on the new reporting requirements for the time being. However, once the rules take effect in 2025, CeFi users will need to be prepared to report transactions accurately.
A significant aspect of the new rules relates to accounting methods. Taxpayers will need to choose an accounting method with their brokers by 2026. The default method, First In, First Out (FIFO), could result in higher tax liabilities for some crypto investors. However, investors can avoid this outcome by maintaining their own records or using tax software that allows for more precise tracking.
As the IRS enforces stricter reporting rules for crypto investors, it’s crucial for all individuals involved in cryptocurrency trading to stay informed and prepared. The introduction of the 1099-DA form marks the beginning of a new era in crypto tax reporting, and investors must ensure they comply with the new rules to avoid penalties or discrepancies.
The IRS’s new measures are designed to ensure greater transparency and accountability in the crypto space, helping to bring cryptocurrency transactions in line with traditional asset classes. By maintaining careful records of all crypto activity and understanding the implications of cost basis reporting, investors can navigate the upcoming tax season with confidence.
With the 2025 tax season on the horizon, crypto investors should familiarize themselves with these new IRS regulations. The transition to third-party reporting will likely affect how crypto transactions are tracked and reported, and understanding these changes will be key to staying compliant.
Investors should also consider using crypto tax software or consulting tax professionals to ensure that their transactions are reported accurately. Staying ahead of these changes will help crypto traders avoid potential complications and ensure that they meet all necessary tax obligations.
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