The IRS is preparing to enforce a new reporting requirement on crypto brokerages beginning Jan. 1, 2025, making this an important moment for investors to get their tax records in order. The agency treats cryptocurrency like property, meaning sales can trigger capital gains or losses, and the new rules place stronger responsibilities on brokers to report detailed information.
New 1099-DA Reporting Rules Start in 2025
Under the updated framework, brokers must issue Form 1099-DA. For tax year 2025, they will be required to report gross proceeds for each digital asset sale they process. Beginning in 2026, they must also report cost basis information for covered securities.
Ric Edelman, financial advisor and founder of the Digital Assets Council of Financial Professionals, said the lack of past reporting made it easier for some investors to act as tax cheats. “Many people mistakenly believe that there’s no reporting obligation,” he said.
Recordkeeping Becomes Critical as Crypto Prices Swing
Crypto investors are navigating a year in which bitcoin reached new highs before undergoing a sharp drop of more than $40,000 from its peak. Understanding the new reporting standards is essential.
Coinbase offered an example: if an investor bought ethereum for $1,500 and paid a $50 transaction fee, the cost basis is $1,550. Selling that 1 ETH for $2,000 would produce a taxable gain of $450.
Daniel Hauffe of the American Institute of Certified Public Accountants said taxpayers must track and verify their cost basis. Investors who transfer tokens into a broker after buying them elsewhere may face complications because the broker will only know the value at the time of transfer, not the original purchase price.
Experts say investors should resolve any gaps in their records now and may need to speak with a tax professional.
Recordkeeping Tools and Services Gain Importance
Crypto owners who have been tracking their transactions informally should consider using recordkeeping services such as ProfitStance, Taxbit, TokenTax and ZenLedger. Edelman said manual tracking is prone to errors due to the complexity of transactions.
IRS Still Developing Broader Guidance
The IRS issued its first core guidance on cryptocurrency more than a decade ago, but the market has grown significantly, creating uncertainty around newer types of transactions. In Notice 2024-57, the agency said it is studying various crypto activities to determine the appropriate tax treatment.
Although the IRS has said it will not impose penalties for limited types of transactions while rules are being finalized, taxpayers still must maintain accurate records.
One major area awaiting clarification is staking. Some advocates say staking rewards should only be taxed when spent, sold or otherwise disposed of. Currently, the IRS says rewards are taxable as income upon receipt, Hauffe noted.
The issue has become more important now that ETF issuers can provide staking rewards. Zach Pandl of Grayscale said this could increase the number of investors facing tax consequences.
Year-End Planning: Tax-Loss and Tax-Gain Harvesting
Pandl said some investors may benefit from tax-loss harvesting before year-end, depending on their crypto purchase timing. Others may benefit from tax-gain harvesting, which involves selling cryptocurrency during a period when the tax impact may be minimal.
Stuart Alderoty, president of the National Cryptocurrency Association, said investors should evaluate gains and losses now. He noted that both strategies depend on tax brackets and whether the gains are short-term or long-term.
Long-term crypto gains—on assets held for more than a year—are taxed at 0%, 15% or 20%. Short-term gains are taxed at ordinary income rates of 10% to 37%.
Reporting Requirements and Areas of Confusion
Determining tax treatment can be complicated because IRS crypto rules remain in flux. Investors must ensure they use the correct forms.
Form 8949 is used when selling or exchanging crypto held as a capital asset. Digital assets received as income—for example, for work performed—must be reported on Form 1040.
Another area of confusion is the digital asset question near the top of Form 1040. The IRS asks whether the taxpayer “received” or disposed of digital assets. Edelman clarified that “received” does not refer to buying crypto but instead applies to income, rewards, mining, staking, airdrops and similar activities.
For all unresolved issues, experts recommend consulting a tax advisor who understands crypto. “Most accountants are not because they haven’t had any training in this area,” Edelman said.
Featured image credits: Flickr
For more stories like it, click the +Follow button at the top of this page to follow us.