IRS reporting rules for cryptocurrency are changing

First Citizens Wealth INTEL: Insights and News—Taxation, Election & Legislation

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Significant changes to digital asset tax rules take effect in 2025, impacting how individuals and businesses report transactions. Key updates include standardized reporting for asset sales, new cost basis rules and an ongoing delay in cash-equivalent reporting requirements for large cryptocurrency payments. Planning ahead and getting advice from a tax professional can help you comply with these new rules.

Who is impacted

If you own digital assets—such as cryptocurrency, nonfungible tokens, or NFTs, stablecoins and tokenized real estate—you have several tax responsibilities. Any profits from selling or trading them are subject to capital gains tax, and you need to report losses as well. If you use cryptocurrency to pay for goods or services, that gain is also taxable if its value has increased since you acquired it.

In addition, the following transactions are taxable as personal or business income:

• Mining or staking crypto by validating transactions on a blockchain
• Receiving free crypto or tokens through airdrops, giveaways or other methods
• Getting paid in crypto for work or services
• Earning rewards from lending or using crypto in financial platforms

Beyond these obligations, updated reporting requirements apply to two main groups.

Individual investors

If you sell or exchange digital assets, you'll now receive standardized information from many brokers. You may also need to change how you calculate the cost basis for these assets.

Businesses and self-employed individuals

New reporting obligations for entities that receive large amounts of cryptocurrency are still delayed—for now.

What investors need to know now

Starting January 1, 2025, brokers who facilitate digital asset trades for US customers must issue a Form 1099-DA for all transactions, and they must collect a Form W-9 from each customer to verify tax IDs and help ensure accurate reporting.

There are some exceptions. Brokers aren't required to issue 1099-DAs to foreign individuals, corporations, financial institutions and tax-exempt organizations. And after a change to an earlier proposal, transactions between digital asset brokers are also exempt.

Keep in mind that the IRS defines a broker to include centralized trading platforms, payment processors, hosted wallet providers and issuers of cryptocurrencies that regularly offer to redeem their tokens, such as stablecoin issuers. Noncustodial industry participants, those who don't exercise control over investors' assets, aren't considered brokers under the current definition.

How Form 1099-DA changes reporting

The new Form 1099-DA will be sent both to you and the IRS, creating a standardized system across the industry. It replaces the previous patchwork approach, where some brokers issued Form 1099-MISC, others used Form 1099-B, and many provided no forms at all.

This year, brokers are required to use the form to report the gross proceeds for each sale or exchange. By 2026, they'll need to report the cost basis as well. While this standardization should simplify tax preparation and make it easier to calculate gains or losses, it's important to note that you're still responsible for reporting these transactions accurately—even if the form is incomplete or contains errors.

Changes to cost basis calculations

Another major change involves how you'll calculate the cost basis for digital assets. Starting in 2025, the IRS will no longer allow the universal wallet method, which treated similar assets across different accounts as one pool. Instead, you'll need to use the wallet-by-wallet method, calculating cost basis separately for each account. This makes detailed recordkeeping more important than ever, and if you haven't kept comprehensive records, complying with the new rule could be a challenge.

Expect delays and increased enforcement

Keep in mind that while brokers are expected to begin issuing 1099-DA forms in 2025, the rollout may be uneven due to missing information and system upgrades. Don't rely solely on these forms to file your 2026 tax forms accurately.

The IRS may also step up enforcement. Standardized reporting makes audits more efficient, so your digital asset transactions could face greater scrutiny.

What businesses need to know now

The Infrastructure Investment and Jobs Act expanded the definition of cash to include digital assets for tax reporting purposes. This means businesses that receive more than $10,000 in cryptocurrency—either in a single transaction or related transactions—would need to file Form 8300 within 15 days of receiving the payment, which aligns with the current requirements for cash transactions.

However, the Treasury Department and IRS have announced a pause in enforcement of this rule until final regulations are issued. For now, your business doesn't have to report large digital asset payments over $10,000—but you should continue to monitor official guidance, because it may change soon.

For more information, read the IRS statement.

Who you should talk to now

Given the complexity and evolving nature of digital asset tax laws, it's important to consult a tax specialist. Professional support is especially valuable for:

• Setting up recordkeeping systems to support the wallet-by-wallet method
• Reviewing past tax returns for compliance and amending them if needed
• Identifying strategies to reduce future tax liability
• Staying updated on regulatory changes and timelines
• Preparing for potential IRS audits

Remember, while clearer rules and standardized forms may help simplify tax preparation, the responsibility for compliant reporting still rests with you.