At Extreme Investor Network, we prioritize keeping our readers well informed about the latest updates in the world of personal finance. That’s why we’re here to break down the latest regulations set forth by the U.S. Department of the Treasury and IRS regarding tax reporting for digital asset brokers and crypto investors. This information is crucial for anyone involved in the digital currency space, so let’s dive right in.
The new regulations mandate yearly reporting for digital asset brokers, starting in 2026. This means that brokers will be required to report gross proceeds from sales in 2025 via Form 1099-DA. In 2027, brokers must also include the cost basis, or purchase price, for certain digital asset sales in 2026. These regulations aim to improve tax compliance and detect noncompliance in the high-risk space of digital assets.
Enacted in 2021 through the Inflation Reduction Act, yearly digital asset reporting was estimated to raise nearly $28 billion over a decade. However, the original start date was postponed, resulting in the regulations being released just recently. The IRS has also made efforts to improve digital currency service, reporting, compliance, and enforcement programs by hiring two former crypto executives.
Crypto investors must take note that basis will now be “specific to the wallet.” This means that each asset’s basis must be established for each digital currency wallet, as opposed to using the best basis from combined accounts. Establishing digital currency basis is crucial, as failure to prove basis could result in the IRS considering it as zero, leading to a larger profit calculation.
While the new crypto tax reporting rules will not apply to the upcoming tax season, 2024 is deemed as the most important tax year for crypto investors to be reporting. During this year, it is essential to collect crypto data and properly report activity, including cost basis. Starting in 2025, the IRS will have a wealth of information to verify the accuracy of past reporting, making it crucial for investors to stay on top of their tax obligations.
At Extreme Investor Network, we understand the importance of staying up to date with changing financial regulations. That’s why we provide valuable insights to help our readers navigate the complex world of personal finance with ease. Be sure to stay tuned for more informative content to help you make informed financial decisions.