Navigating the New Crypto Tax Reporting Requirements

The world of cryptocurrency is entering a new era of tax compliance in 2025. With the introduction of IRS Form 1099-DA, digital asset transactions will now be subject to more rigorous reporting standards, marking a significant shift for both investors and brokers.

These changes aim to enhance transparency, improve tax compliance, and close gaps in unreported crypto income. Here’s everything you need to know about these new requirements and how to prepare.

What Is Form 1099-DA?

Form 1099-DA, or the Digital Asset Proceeds from the Broker Transactions form, is a new tax form that brokers, including cryptocurrency exchanges, payment processors and hosted wallet providers, must provide taxpayers to report digital asset sales or exchanges.

The form includes key details such as:

  • Gross proceeds from sales or exchanges
  • Transaction dates and types (e.g., buy, sell, exchange)
  • Fair market value of digital assets at the time of the transaction
  • Broker identification and account details

This form will be sent to both taxpayers and the IRS starting in early 2026 for transactions conducted during the 2025 tax year. Taxpayers will be required to incorporate the new 1099-DA form into their annual tax filing for 2025 and beyond.

It is expected that the IRS will review these forms similarly to how it reviews other forms of reported income to assess additional taxes, penalties and interest when it discovers that income from digital assets is underreported.

Why Are These Changes Happening?

The IRS introduced Form 1099-DA as part of its broader effort to address tax evasion in the growing cryptocurrency market. These efforts are similar to attempts by the IRS to manage and appropriately tax income earned by gig workers in 2021 and changes to the broader economy as sources of income have evolved over time.

Historically, inconsistent reporting and a lack of third-party verification have made it challenging for the IRS to track taxable crypto transactions. This has been due to several factors:

  • Pseudonymity of Transactions: Cryptocurrency transactions are pseudonymous, meaning they use public addresses that are not directly linked to individuals or entities. This makes it difficult for tax authorities to identify the parties involved in transactions without additional information.
  • Lack of Comprehensive Reporting: Historically, many cryptocurrency exchanges did not consistently report transaction data to the IRS. Until recently, reporting obligations were limited or inconsistent, leaving gaps in the IRS' ability to match reported income with taxpayer filings.
  • Use of Decentralized Platforms: Transactions conducted on decentralized exchanges or through peer-to-peer networks bypass centralized platforms that are subject to reporting requirements. These transactions are significantly harder for the IRS to trace.
  • Complexity of Blockchain Technology: While blockchain records are public and immutable, analyzing and linking wallet addresses to specific individuals requires advanced tools and expertise. The IRS has partnered with blockchain analytics firms like Chainalysis to improve its ability to track such transactions, but this remains a resource-intensive process.
  • Evasion Tactics: Some taxpayers use privacy-focused cryptocurrencies or mixers (services that obscure transaction origins) to hide their activities. While these methods are not foolproof, they add another layer of complexity for tax authorities.
  • Rapid Innovation in the Crypto Space: The fast-paced evolution of blockchain technologies and the emergence of new cryptocurrencies create ongoing challenges for regulators trying to keep up with tax enforcement.

By requiring standardized reporting from brokers, the IRS aims to ensure greater accuracy and compliance.

Key Highlights of the New Rules

The IRS issued detailed instructions as a companion to the new 1099-DA from. These instructions contain information that detail a wide range of topics from who must report, covered transactions and exemptions.

Following are highlights from the 1099-DA instructions and guidance provided by the IRS:

  • Mandatory Reporting for Brokers: Brokers facilitating digital asset transactions must report gross proceeds and other transaction details on Form 1099-DA. This includes centralized exchanges like Coinbase and Gemini as well as certain payment processors.
  • Cost Basis Reporting Delayed: While gross proceeds must be reported for 2025 transactions, brokers are not required to report cost basis (the original purchase price) until the 2026 tax year. This delay may impact taxpayers’ ability to calculate gains or losses accurately.
  • Safe Harbor Relief: Taxpayers can continue using specific accounting methods like FIFO (First In, First Out), LIFO (Last In, First Out), or HIFO (Highest In, First Out) for cost basis calculations in 2025. However, brokers are not yet required to support these methods.
  • Real Estate Transactions: Starting in 2025, real estate entities must report digital assets used as payment in property transactions on Form 1099-S alongside fair market value details.
  • Exemptions for Non-Custodial Platforms: Decentralized exchanges (DeFi) and unhosted wallets are exempt from third-party reporting requirements until at least 2027.

How Should Investors Prepare?

To ensure compliance with these new regulations, cryptocurrency investors should take the following steps:

For Individuals

  • Understand Form 1099-DA: Starting in 2025, brokers and exchanges must issue Form 1099-DA to report digital asset sales or exchanges. This form will include transaction details such as gross proceeds, transaction type and fair market value. Investors should take time to familiarize themselves with the new form and its contents.
  • Track All Transactions: Maintain detailed records of all crypto activities, including dates, amounts, transaction types, cost basis and fair market values at the time of each transaction. This is essential for calculating gains or losses and ensuring accurate tax reporting.
  • Use Crypto Tax Software: Leverage tax software designed for digital assets to streamline tracking and reporting. These tools can help import transaction data from multiple exchanges and wallets, simplifying tax preparation.
  • Choose an Accounting Method: Decide on an accounting method for crypto transactions (e.g., FIFO, HIFO, or Specific Identification). Notify your exchange of your choice to avoid defaulting to FIFO, which may result in higher taxable gains.
  • File Correct Tax Forms: Report crypto transactions on Form 8949 and Schedule D for capital gains/losses or Schedule C for crypto income. Ensure all taxable events, such as staking rewards or payments received in cryptocurrency, are included.
  • Consult a Tax Professional: Given the complexity of crypto taxes, working with an expert can help you navigate these changes and avoid costly mistakes.

For Businesses

  • Upgrade Systems for Reporting: Invest in software capable of tracking detailed transaction data and generating Form 1099-DA for customers. Ensure systems can handle cost basis calculations and support compliance with IRS requirements.
  • Collect Customer Information: Implement processes to gather valid tax certifications (e.g., Form W-9 or W-8) from customers to meet reporting obligations. Failure to do so may result in backup withholding taxes.
  • Train Staff: Educate employees involved in accounting or compliance about the new reporting rules to ensure accurate filings and adherence to regulations.
  • Communicate with Customers: Inform customers about the new reporting requirements, how they will receive Form 1099-DA and what information they need to provide for accurate reporting.
  • Monitor Transitional Relief: Be aware of temporary relief measures provided by the IRS, such as delays in implementing certain rules like mandatory FIFO accounting until Dec. 31, 2025.
  • Consult Tax Professionals: Similar to individuals, businesses can benefit from working with crypto-savvy accountants or legal advisors to navigate complex reporting requirements and minimize compliance risks.

What Should Brokers Do?

Brokers must adapt their systems to comply with the new reporting requirements:

  • Upgrade Reporting Infrastructure: Implement software capable of generating detailed Form 1099-DAs.
  • Educate Customers: Inform clients about what information will be reported and how it will impact their taxes.
  • Ensure Data Security: Strengthen cybersecurity measures to protect sensitive customer data included on Form 1099-DA.

Final Thoughts

The introduction of Form 1099-DA represents a significant step forward in cryptocurrency tax regulation. While it adds complexity for both investors and brokers, it also promotes transparency and ensures fair compliance across the board.

By staying informed and proactive, taxpayers can navigate these changes smoothly while minimizing their tax liabilities. As we move into this new era of crypto taxation, preparation is key. Whether you're an investor or a broker, understanding your obligations under these rules will help you stay ahead in this rapidly evolving landscape.

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