New IRS requirements will make crypto ‘tax cheat’ risky for this year

As the end of the year approaches, it’s time to make sure your tax office is in order. This is especially important for crypto investors, given the new IRS brokerage reporting requirement covering transactions after January 1, 2025.

The IRS generally treats crypto as property, similar to stocks or real estate, so selling crypto can trigger capital gain or loss. While crypto investors have been required to keep good records from the beginning, the new reporting requirement gives them an even more compelling reason to do so. This is because brokers are now required to submit what is known as Form 1099-DA. For the 2025 tax year, the broker is required to report gross income for each digital asset sale it processes. In 2026 and beyond, brokers are required to report gross receipts and cost basis information for covered securities.

Ric Edelman, financial advisor, founder and author of the Council of Financial Professionals on Digital Assets, said it’s easier for people to act as tax evaders because brokers haven’t had to issue 1099s to sell or trade crypto in the past. “Many people mistakenly believe there is no reporting obligation,” Edelman said.

Crypto investors do their tax planning for a year bitcoin When you’re looking to soar to new highs but have to endure a massive sell-off that recently led to a drop of over $40,000 from its record price, it’s important to understand the new, stricter record-keeping requirements.

Let’s say you bought Ethereum for $1,500 and paid a $50 transaction fee, your cost basis is $1,550, according to an example provided by coinbase. “Essentially your gain or loss is the difference between gross revenue and cost basis. If you sell 1 ETH for $2,000, your taxable gain will be $450 ($2,000 – $1,550).”

Get your crypto records organized now

Brokers are required to report cost basis information for the 2026 tax year, and if you haven’t kept good records by now, you’ll have to start. “It is taxpayers’ responsibility to track and verify the cost basis they provide,” said Daniel Hauffe, senior director of tax policy and advocacy at the American Institute of Certified Public Accountants.

For many crypto investors, this will be complicated, especially if they transfer their tokens to a broker after holding them elsewhere and do not keep careful records. In this case, the broker will not have the amount for which you purchased the crypto; The broker will only know the price when you transfer, Hauffe said.

Ideally, taxpayers should try to resolve these issues now before brokers are required to report the basis, and this may require speaking with a qualified tax professional.

Crypto investors who have haphazardly tracked their assets in the past should also consider hiring a tax crypto recordkeeping provider. There are a number of these services including ProfitStance, Taxbit, TokenTax and ZenLedger.

Because of the complexities, it’s best to utilize a recordkeeping provider, Edelman said. “If you try to do this manually, it will be complicated and you will probably make mistakes,” he said.

Crypto staking and staking ETFs will be a major tax focus

While the IRS issued basic guidance on the tax treatment of cryptocurrency more than a decade ago, the market has changed significantly since then, underscoring the need for updated guidance in a variety of areas.

In 2024, the IRS will Notice 2024-57It said it continues to review different types of crypto transactions to determine appropriate taxation. This has left many taxpayers in limbo and confused about how to report certain types of transactions. While the IRS has said it will not impose penalties on limited types of transactions as regulations are eased, taxpayers still need to keep careful records so they can properly account for them.

One of the areas where cryptocurrency investors are looking for direction is staking transactions. Guidance on this and other more complex crypto transactions is expected next year, Edelman said. Some advocates say taxes should apply only when those rewards are spent, sold or otherwise disposed of. But so far, Hauffe said, the IRS has said these rewards should be taxed as income once received.

Additional guidance on staking could be especially important now that the IRS has confirmed that exchange-traded fund issuers can provide staking rewards, said Zach Pandl, head of research at Grayscale, a digital asset-focused investment platform. The availability of cryptocurrency in ETFs has broadened the playing field for ordinary investors to gain some exposure to the asset class, and the latest guidance suggests more investors will face tax consequences from staking rewards. “Stake rewards are becoming increasingly common for investors because they are now enabled in ETFs,” Pandl said.

Bitcoin’s Big Drop Could Be a Tax Loss Advantage

Pandl said there may be an opportunity for some crypto investors in the coming months to harvest tax losses, which involves selling investments at a loss and using those losses to offset gains on other investments.

Bitcoin’s struggles since October’s record highs may present investors with an opportunity to benefit from a tax perspective depending on when they purchased the crypto. Some investors may also benefit from tax gain harvesting, a strategy that involves selling the investment when you think it will have the least impact on your taxes.

“It’s time to think about it and plan for it,” said Stuart Alderoty, President of the National Cryptocurrency Association, a nonprofit focused on crypto education. “You can harvest the gains, you can harvest the losses,” he said.

Many accountants do not understand digital assets

Taxation largely depends on one’s tax bracket and whether these are short-term or long-term gains. For example, if you hold the cryptocurrency for more than a year, your profits are subject to long-term capital gains rates of 0%, 15%, or 20%. If the cryptocurrency is held for less than a year, normal tax rates of 10% to 37% apply.

Due to the complexity and unique nature of cryptocurrency, determining taxation is complicated by other factors; IRS rules are changing, especially regarding crypto. For example, it is important to make sure you report the crypto transaction on the correct form. For example, use Form 8949 if you sold, exchanged, or otherwise disposed of a digital asset that you held as a capital asset. If you were paid as an employee or independent contractor with digital assets, report digital asset income on Form 1040, U.S. Individual Income Tax Return.

Moreover, many crypto holders are confused about the federal income tax question regarding digital assets. On the first page, near the top, they are asked to indicate whether they received (as a reward, reward, or payment for property or services) or sold, exchanged, or otherwise disposed of a digital asset at any time during the tax year.

Edelman said many people think “buy” means buy, but it doesn’t. More precisely, the IRS says It refers to digital assets received for payment for property or services provided, for a reward or reward, for mining, staking and similar activities, or for an airdrop related to a hard fork.

For these and other issues regarding crypto taxation, be sure to speak with a crypto-savvy tax advisor. “Most accountants don’t because they haven’t had any training in the field,” Edelman said.