The U.S. Department of the Treasury and IRS have recently announced final tax reporting rules for digital asset brokers, and this has significant implications for crypto investors. With mandatory reporting set to begin in 2026, investors have limited time to prepare for these new regulations.
The new regulations will require digital currency brokers to cover gross proceeds from sales in 2025 using Form 1099-DA. In 2027, brokers must also include the cost basis or purchase price for certain digital asset sales in 2026. IRS Commissioner Danny Werfel emphasized that these regulations are crucial for ensuring compliance among high-income individuals and preventing digital assets from being used to hide taxable income.
Crypto investors will need to be proactive in establishing basis for each digital currency wallet by the end of 2024. Failure to assign basis could result in the IRS considering it zero, leading to higher taxable profits. This new requirement is a significant departure from current practices, where crypto tax software typically calculates gains using the best basis from combined accounts.
While the new regulations won’t take effect until 2025, tax experts are advising investors to start preparing now for the changes. Establishing a “reasonable allocation” for each asset’s basis before Jan. 1, 2025, will be crucial for accurate reporting in the future. After 2025, the IRS will have access to a wealth of information to verify past reporting, so it is essential for investors to ensure their records are up to date.
Tax attorney and certified public accountant Andrew Gordon has stated that 2024 will be a pivotal year for crypto investors in terms of reporting. He warns that the IRS will have a “firehose of information” at its disposal starting in 2025, making it crucial for investors to be diligent in their reporting practices. Failure to comply with the new regulations could result in penalties and audits.
The upcoming changes in cryptocurrency tax reporting will have a significant impact on investors. It is essential for investors to familiarize themselves with the new regulations, establish basis for each digital currency wallet, and ensure accurate reporting moving forward. Failure to comply with the new rules could result in financial penalties and audits by the IRS, highlighting the importance of proactive tax planning in the cryptocurrency space.