On April 18, the Internal Revenue Service released the draft version of Form 1099-DA—Digital Asset Proceeds From Broker Transactions—its first tax form specifically designed to collect crypto users’ identities and detailed transaction data.
The form was issued in conjunction with proposed broker regulations. These mean that centralized exchanges, certain decentralized exchanges, wallets, crypto automated teller machines and payment processors, all of which can act as brokers in the digital-assets markets, would have to implement know-your-customer (KYC) procedures, calculate gains and losses, and report that information to the IRS and taxpayers, similar to traditional stockbrokers.
Although 1099-DA forms are meant to ease the burden of filing crypto taxes, if you have multiple wallets, exchanges and transfers among them (which is very common), these forms could submit inaccurate or incomplete information to the IRS. The reports can also confuse users and add to the burden of complying with crypto taxes.
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Key Background
When Are Form 1099-DAs Generated?
Digital-asset brokers must generate a Form 1099-DA for every sale transaction (crypto-to-cash trades and crypto-to-crypto trades) initiated by their customers and submit that information to the IRS. Under proposed regulations, brokers must issue this form for transactions occurring after January 1, 2025. If implemented as proposed, taxpayers will see this form during the 2026 tax filing season. Form 1099-DAs must be generated by brokers, not taxpayers. Taxpayers will use the information reported in this form to complete their tax filings.
What Is Reported On Form 1099-DA?
Form 1099-DA is similar to Form 1099-B—Proceeds From Broker and Barter Exchange Transactions—generated by stockbrokers showing gains and losses from equity trades. The draft Form 1099-DA captures expected data points such as acquisition and sales dates, transaction proceeds, and the cost basis of crypto assets sold. This information is needed and helpful for taxpayers to complete their filings.
The new form also captures additional data points (see below) related to sales and transfer transactions. Collecting and reporting this information, notably wallet addresses, to the IRS at scale could lead to privacy and security concerns.
Sales-related data points
Box 11a: Sale transaction ID (TxID)
Box 11b: Digital asset address from which the units were sold
Box 11c: Number of units sold
Transfer related data points
Box 12a: Transfer-in TxID number
Box 12b: Transfer-in digital asset address
Box 12c: Number of units transferred in
Unhosted Wallets May Be Brokers
Since the passage of the infrastructure bill in 2021, the definition of “broker” has been a controversial topic because of industry concern that it could loop in entities with little ability to comply with the law, such as unhosted wallets that do not rely on a centralized entity to secure assets. Proposed broker regulations issued in 2023 mention that unhosted wallet providers could be considered brokers. Industry members submitted thousands of comments to the Treasury Department asking to narrow the definition of brokers and exclude unhosted wallets, at least in the beginning stage of the regulations.
In the new draft Form 1099-DA, the IRS has included “unhosted wallet provider” as a check box under the “broker type involved in the transaction.” Despite the industry feedback, this signals the IRS’s intention to include unhosted wallets under the broker definition.
If the proposed regulations and Form 1099-DA are finalized without changes, crypto users will likely have to provide KYC information before creating an unhosted wallet and interacting with exchanges or lending platforms. This could drastically change how users interact with crypto platforms.
Taxpayer Impact
Taxpayers should expect missing and/or inaccurate cost-basis information on Form 1099-DAs if digital assets were acquired before January 1, 2023, or the cost basis was unknown to the reporting exchange or wallet due to transfers.
According to form instructions, if the cost basis is blank, “you will need to determine your basis based on your own books and records.” Crypto users should monitor how the form 1099-DA gets finalized with proposed broker regulations.
Further Reading
New IRS Crypto Tax Rules Pose A Threat To DeFi
Infrastructure Bill Is Brewing A Crypto Tax Compliance Nightmare
Infrastructure Bill Would Simplify Bitcoin Taxes For Most Investors
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
The rule introduces a new tax reporting form called Form 1099-DA, meant to help taxpayers determine if they owe taxes, and would help crypto users avoid having to make complicated calculations to determine their gains, according to the Treasury Department.
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, 1120 and 1120S must check one box answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.
There is no way to legally avoid taxes when cashing out cryptocurrency. However, strategies like tax-loss harvesting can help you reduce your tax bill legally. Converting crypto to fiat currency is subject to capital gains tax. However, simply moving cryptocurrency from one wallet to another is considered non-taxable.
Crypto-specific activity that might trigger an audit includes: Failure to accurately report crypto transactions and income.Large transactions or significant gains.Inconsistencies or discrepancies.
2024 is the most important tax year for crypto investors to be reporting. For 2024, you still need to collect crypto data and properly report activity, including your cost basis. Starting in 2025, the IRS will have a “firehose of information” to verify whether past reporting was accurate, Gordon said.
If you buy Bitcoin, there's nothing to report until you sell. If you earned crypto through staking, a hard fork, an airdrop or via any method other than buying it, you'll likely need to report it, even if you haven't sold it.
Some cryptocurrency exchanges do not report user transactions to the IRS, including: Decentralized crypto exchanges (DEXs) like Uniswap and SushiSwap. Some peer-to-peer (P2P) platforms. Exchanges based outside the US that do not have a reporting obligation under US tax law.
If a taxpayer holds a digital asset as a capital asset and sells, exchanges, or transfers it during the taxable year, the taxpayer must use IRS Form 8949, Sales and Other Dispositions of Capital Assets, to calculate the gain or loss on the transaction, and then report that gain or loss on Schedule D (Form 1040), ...
There's no way to legally evade taxes when you convert crypto to fiat currency. This is considered a disposal event subject to capital gains tax. Do you have to pay taxes on crypto if you reinvest? If you disposed of your cryptocurrency and reinvested your proceeds, you are still required to pay capital gains tax.
Cryptocurrencies are traceable, with transactions recorded on a public ledger accessible to the IRS. The IRS uses advanced methods to track crypto transactions and enforce tax compliance. Centralized exchanges provide user data to the IRS. Use crypto tax tools like Blockpit for accurate reporting and compliance.
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The IRS requires a summary statement for any investment that wasn't reported on a Form 1099-B. You may use your crypto Form 8949 as your summary statement.
Buy, hold, and breathe easy. You don't have to report crypto on your taxes if you only bought and held it without selling. If you buy some Bitcoin and just, you know, keep it (because you're "HODLing" or you forgot about it or you lost your keys or whatever), the IRS doesn't really care.
Introduction: My name is Dr. Pierre Goyette, I am a enchanting, powerful, jolly, rich, graceful, colorful, zany person who loves writing and wants to share my knowledge and understanding with you.
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