New Crypto Tax Rules: What the IRS’s 1099-DA Means for You
Decoding the IRS’s move to shift crypto tax reporting to brokers and what it means for investors like you
New Crypto Tax Rules: What the IRS’s 1099-DA Means for You
The IRS and the U.S. Department of Treasury have finally rolled out new reporting requirements for cryptocurrency brokers, set to begin in 2025. This isn’t just an incremental change—it’s a major overhaul of how crypto tax reporting will work. Until now, the burden has been on investors to keep meticulous records and report gains or losses on every trade, often leading to underreporting and a massive tax gap. Let’s break down what’s changing, what the numbers tell us, and why you must prepare now.
The Problem: A Decade of Chaos for Crypto Investors
Since Bitcoin’s early days, crypto investors have had to manually track their cost basis, sales price, and net gains. If you’ve been trading crypto, you know this pain. For example, say you bought 2 ETH for $3,000 in early 2021, traded 1 ETH for another coin, and later sold the other ETH for $4,500.
Now, instead of relying on third-party reporting, you’ve been tasked with figuring out the cost basis for the ETH you sold—often without clear records from different exchanges. Multiply that by dozens or hundreds of trades, across different tokens, and the complexity skyrockets. The IRS estimates that billions of dollars in taxes have gone uncollected, simply because so many investors either didn’t know how to report accurately or gave up altogether.
The Fix: Brokers Now Take On the Burden
Starting with the 2025 tax year, crypto brokers will report your transactions directly to the IRS via a new form called Form 1099-DA. This works similarly to the 1099-B form used for stock market trades, meaning it will capture:
Cost basis (what you paid for the crypto)
Sales price (what you sold it for)
Net gains/losses (the difference between purchase and sale prices)
For example, if you bought 1 BTC at $40,000 and sold it at $60,000 in 2025, the 1099-DA will show that you have a $20,000 capital gain. The form will go to both you and the IRS, so there's little room for error or omission. The IRS is shifting its strategy from relying on voluntary reporting to automated, standardized data, putting you in the same position as stock investors who get their tax forms pre-filled with data from their brokers.
Key Timeline: The Countdown to 2025
Here’s a breakdown of when the new rules will start to impact your taxes:
2025: Brokers start reporting using Form 1099-DA.
2026: You’ll file your 2025 tax returns with this new data in hand.
But don’t let that fool you into thinking you can ignore the issue until then. If you've been trading crypto in the past few years, the IRS will soon have access to a trove of new information, and audits will likely spike as a result.
Example: Why You Need to Prepare Now
Let’s assume you’ve been trading actively and made a decent profit in the past two years, but you didn’t fully report everything. If you bought 10 ETH at $2,000 each in 2022, and sold them for $3,500 each in 2023 but didn’t report it—that’s $15,000 in unreported gains.
Come 2025, the IRS will get a detailed report on your trades. Not only could they audit you, but if they find discrepancies, you could face penalties and back taxes on those unreported gains. The time to amend past returns is now before the IRS starts scrutinizing your filings with their new flood of data.
Immediate Action: What Investors Should Be Doing Now
Although Form 1099-DA won’t come into play until 2025, getting your tax situation in order now is critical. Here’s what you should focus on:
Revisit your 2020–2023 filings: Make sure you've properly reported all your crypto trades. If you missed some, consider filing amended returns.
Get your cost basis straight: Many exchanges won't have complete cost basis data for transactions before 2025. If you've been moving assets between wallets and platforms, start consolidating records now. Tools like CoinTracker or Koinly can help aggregate data across multiple exchanges and wallets.
Talk to a tax pro: The IRS will be under immense pressure to close the tax gap, meaning audits and investigations will ramp up. Consulting a tax attorney or CPA now can save you from headaches later.
Example: What Happens If You Don’t Prepare?
Let’s say you’ve been trading in and out of various tokens—Bitcoin, Ethereum, Solana—without tracking your activity closely. Maybe you bought 5 SOL at $40 each in mid-2022 and sold at $70 a few months later. You didn’t report the $150 gain, thinking it was insignificant or too complex to track.
But fast-forward to 2025: your broker reports the entire transaction history to the IRS. That $150 gain? The IRS knows about it. If you consistently underreport, even on small trades, the IRS will flag your account. You might get a letter demanding an audit or back taxes, and suddenly that "insignificant" amount becomes a big deal.
What About DeFi?
There’s a big catch here: decentralized platforms are mostly exempt from these new reporting requirements—for now. If you’re trading on DeFi platforms, you won’t receive a 1099-DA, which means you’re still responsible for tracking and reporting those transactions. However, this doesn’t mean the IRS will ignore DeFi. Future regulations are likely to address decentralized finance, so don’t think you’re in the clear just because DeFi isn’t on the immediate radar.
The Bigger Picture: Tax Compliance Meets Crypto’s Future
This is more than just the IRS wanting to collect more money. Cryptocurrency is becoming mainstream, and this regulation represents the U.S. government’s effort to integrate digital assets into the broader financial system. By standardizing reporting, they’re leveling the playing field for traditional and digital asset investors. But it also means the IRS will have unprecedented visibility into crypto transactions.
If you’ve been meticulous with your reporting, the new system might simplify things. For the first time, your crypto tax forms will come pre-filled with transaction data, much like how stock investments work today. But if you’ve been less diligent, expect scrutiny to increase dramatically.
Bottom Line: Get Ready for a Tighter IRS Crypto Crackdown
Whether you’re a casual investor or an active trader, the new IRS crypto tax rules are a game-changer. Start preparing now by reviewing your past trades, cleaning up your cost basis, and making sure you're fully compliant. Don’t wait for the IRS to come knocking with data you didn’t think they had.
This is just the beginning. As crypto evolves, tax regulations will keep adapting. Staying ahead of the curve is your best strategy for staying compliant and minimizing your tax liability.