Stronger Tax Regulations on Cryptocurrency on the Horizon

Dhruv Panchal

CPA | Tax Supervisor

Cryptocurrency is relatively established with 17% of Americans using it, but the regulations on tax reporting are still in the infancy stage.

The Treasury Department has proposed a new Form 1099-DA to modernize reporting requirements related to cryptocurrency. It would result in an easier way to determine the transactions that result in a taxable event and gives crypto users a clearer answer regarding taxation around cryptocurrency. While the form is new, the rationale aligns with what Congress adopted in 2021 with the passage of the Infrastructure Investment and Jobs Act (IRA).

How Paying Taxes on Cryptocurrency is Changing

The current system in place is a hodgepodge of rules, with part of it being based on the honor system.  The proposed 1099-DA would require brokers to annually report the sales and exchanges of digital assets to both the IRS and the taxpayer, similar to how the sale of securities is reported. As such, the learning curve is low as most taxpayers are used to the reporting regime related to the sale of stocks, bonds, and mutual funds.

Who’s Affected?

This Proposal gives a clearer definition of who brokers are and will encompass both traditional brokers (i.e. Morgan Stanley) and new entrants (i.e. Coinbase). It includes both centralized and decentralized trading platforms, crypto payment processors and online applications that store digital assets, such as Bitcoin, Ethereum and NFTs.

What’s Next for Crypto Users?

The government is catching up to the nascent crypto world and trying to bring order and consistency to the taxation of digital assets. Currently, the IRS is waiting to hear feedback until October 30, and once fine-tuned, implementation would occur for the 2025 tax year, giving the industry two years to get systems and best practices in compliance. 

While any change, especially tax changes, can cause anxiety, Cray Kaiser is here to help you navigate potential pitfalls and opportunities. Please call us today at 630-953-4900.

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