The U.S. Department of the Treasury and IRS recently announced final tax reporting rules for digital asset brokers, setting the stage for significant changes in the world of cryptocurrency investing. These regulations, which will come into effect starting in 2026, aim to improve compliance and crack down on tax evasion in the high-risk space of digital assets.
Under the new rules, digital currency brokers will be required to report gross proceeds from sales in 2025 via Form 1099-DA. This mandatory yearly reporting will gradually phase in, with brokers also being mandated to include cost basis for certain digital asset sales in 2026. This move is part of a larger effort on high-income individual tax compliance, according to IRS Commissioner Danny Werfel.
The IRS has been ramping up its efforts to improve digital currency service, reporting, compliance, and enforcement programs. The agency recently hired two former crypto executives to bolster its capabilities in this area. The goal is to prevent the use of digital assets to hide taxable income and improve detection of noncompliance. The regulations are seen as a crucial step in cracking down on tax evasion and increasing tax revenues.
Crypto investors need to be aware of the upcoming changes and take proactive steps to ensure compliance. Establishing a reasonable allocation of basis for each digital currency wallet by the end of 2024 is crucial. Failure to do so could result in the IRS considering the basis as zero, leading to higher tax liabilities. Each asset’s basis must be specific to the wallet, highlighting the importance of accurate record-keeping and reporting.
While the new crypto tax reporting rules won’t come into effect immediately, they will significantly impact crypto investors starting in 2025. The IRS will have access to detailed information to verify the accuracy of past reporting. This means that investors need to be diligent in their reporting and ensure they comply with the new regulations to avoid penalties and audits in the future.
The new IRS regulations on crypto tax reporting will have far-reaching implications for investors in the digital asset space. It is crucial for investors to understand and comply with these regulations to avoid legal consequences and ensure accurate reporting of their digital asset transactions. By taking proactive steps and establishing a solid basis for each digital currency wallet, investors can navigate the changing regulatory landscape and stay on the right side of the law.