Breaking down the latest regulations and what they mean for cryptocurrency investors
In a move to improve tax compliance within the cryptocurrency industry, the IRS and U.S. Department of Treasury finalized new regulations on June 28, 2024. These regulations aim to streamline crypto tax reporting for both investors and the government, effective for transactions starting in 2025.
Key takeaways for cryptocurrency investors:
- Standardized Reporting with a New 1099 Form: Starting in 2026 (covering tax year 2025), cryptocurrency platforms that hold your assets (custodial platforms like Coinbase) must report your crypto transactions to the IRS using a new Form 1099-DA. This is similar to the 1099 forms you receive from banks and brokerages for traditional investments, simplifying tax filing for cryptocurrency gains and losses.
- Focus on Tax Evasion Prevention: The IRS acknowledges the potential for cryptocurrency to be used for tax evasion. Commissioner Danny Werfel stated that these regulations aim to "improve detection of noncompliance in the high-risk space of digital assets"
- Decentralized Platforms Not Included (for now): The key point is that these regulations currently only apply to custodial cryptocurrency platforms. These rules do not directly impact decentralized exchanges (DEXs) and non-custodial wallets, where users hold their own private keys and assets. The Treasury Department and IRS plan to address reporting for these platforms in a separate set of regulations
What this means for you:
- Simpler Tax Reporting: If you primarily use custodial cryptocurrency platforms, you can expect to receive a 1099-DA form starting in 2026, making tax filing for your crypto transactions much easier.
- Continued Need for Accurate Records: It's still important to maintain good records of your cryptocurrency transactions, even for platforms that will be issuing 1099 forms. This will ensure accuracy and help you in case of any discrepancies.
- Stay Informed on Decentralized Platforms: If you use decentralized platforms, be aware that separate regulations may be introduced in the future. It's advisable to stay updated on any developments from the IRS.