New Reporting Requirements for Digital Assets
If you invest or trade in Bitcoin, non-fungible tokens (NFTs), Stablecoins, or other digital assets, prepare for sweeping new tax reporting requirements.
New Reporting Requirements for Digital Assets
Congress wants the IRS to crack down on taxpayers who buy and sell crypto but don’t report or pay tax on their gains. To do so, it requires people and companies that facilitate the sale of digital assets to provide the IRS with the same information that stockbrokers must provide when selling stocks and other investments.
Proposed Regulations
Crypto is complicated, so it has taken the IRS two years to draft over 280 pages of proposed regulations explaining how these new reporting requirements should work.
Form 1099-DA for Digital Assets
Effective Date: Starting with the 2025 tax year, digital asset brokers must file a new Form 1099-DA with the IRS whenever they facilitate the sale of digital assets.
Information Included: The 1099-DA will include such information as the customer name and TIN, sales proceeds, tax basis, and gains and losses.
Definition of Digital Assets: “Digital assets” are defined broadly to include any digital representation of value recorded on a blockchain, including Bitcoin and other cryptocurrencies, Stablecoins, and NFTs.
Definition of Digital Asset Brokers: “Digital asset brokers” include any entities that provide services facilitating sales of digital assets and would typically know or be in a position to know the identities of the parties involved in such sales. This includes digital asset trading platforms, payment processors, and many digital wallet providers.
Phased Implementation
2025 Tax Year: Brokers must report the gross proceeds of digital asset sales.
2026 and Later: Brokers must report the adjusted basis and whether any gains or losses are short-term or long-term. Brokers do not have to report digital asset sales for tax years 2023 and 2024.
Impact on Taxpayers
Volume of Forms: The IRS estimates that it will receive eight billion new Form 1099-DAs each year filed on behalf of 13 million to 16 million taxpayers.
Simplified Reporting: Receiving Form 1099-DA should make your life easier when you file your tax return, as you can rely on the gains and losses reported on the form.
IRS Monitoring: The new rules will enable the IRS to compare the amounts reported on Form 1099-DA with the numbers taxpayers report on their returns. If there is a discrepancy, the IRS system will automatically send you a notice to correct your error.
Future Changes
The proposed regulations are not set in stone, and there could be more changes before they go into effect.
Conclusion
Staying informed about these new regulations is crucial for anyone involved in digital asset transactions. If you want to discuss your crypto activity or the proposed regulations, please call me on my direct line at 425-243-2026. We're here to help you navigate these changes and ensure your compliance with the new reporting requirements.