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The U.S. Treasury Department and the IRS released their final report on Friday. tax reporting regulations for digital asset brokers — and Cryptocurrency Investor Experts say we have limited time to prepare.
Annual reporting will be required starting in 2026, with digital currency brokers required to report gross proceeds from sales in 2025 via Form 1099-DA. In 2027, brokers will be required to include the cost basis or purchase price for certain digital asset sales in 2026.
“These regulations are an important part of a larger effort to improve tax compliance for high-income individuals,” IRS Commissioner Danny Werfel said in a statement. “We need digital asset security should not be used to conceal taxable income, and these final regulations will improve the ability to detect non-compliance in the high-risk digital asset sector.”
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Issued in 2021 through the Deinflation Act, the annual digital asset report estimates an increase nearly 28 billion dollars more than a decade, according to the Joint Committee on Taxation. However, the original start date has been postponed.
The IRS’s new regulations come about four months after the agency has hired two former cryptocurrency executives to improve digital currency services, reporting, compliance and enforcement programs.
“Everyone has been waiting for this wave of enforcement,” James Creech, a lawyer and senior director at accounting firm Baker Tilly, previously told CNBC.
The facility will be ‘wallet specific’
With limited reporting on the ground, crypto investors have the opportunity establish a “fair allocation” by Jan. 1, 2025, according to IRS revenue procedures released Friday.
Matt Metras, a registered agent in Rochester, New York and owner of MDM Financial Services, said taxpayers will need to designate the basis for each digital currency wallet by the end of 2024.
If you buy crypto over the years through different wallets, you now have “many different underlying lots,” he said.
Crypto tax software typically uses the best basis from your combined accounts to calculate gains. But going forward, each asset’s basis should be “specific to each wallet,” Metras said.
Establishing your crypto basis is important because generally, if you can’t prove your basis, the IRS will consider it to be zero, resulting in a larger profit.
The ‘most important tax year’ to report
New cryptocurrency tax reporting rules will not apply to the upcoming tax season.
However, Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group, said: “2024 is the most important tax year for crypto investors to report.”
2024 is the most important tax year for crypto investors to report.
Andrew Gordon
Chairman of Gordon Law Group
For 2024, you’ll still need to collect cryptocurrency data and report your activity properly, including your cost basis. Starting in 2025, the IRS will have “an information flow” to verify whether previous reporting was accurate, Gordon said.
