Crypto Tax Preparedness: Navigating the New 1099-DA Reporting

Form 1099-DA, officially titled "Digital Asset Proceeds from Broker Transactions," represents a new mandate from the Internal Revenue Service (IRS) that compels select brokers to report digital asset exchanges. This initiative aims to bolster transparency and encourage compliance within the swiftly developing digital asset realm, encompassing cryptocurrencies, non-fungible tokens (NFTs), and similar digital holdings.

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Effective Compliance Date: The mandatory reporting of digital asset transactions via Form 1099-DA is slated to commence with the 2025 tax year, with brokers issuing the forms to taxpayers and the IRS by early 2026. Previously, digital asset transaction reporting relied primarily on self-disclosure, a method prone to inconsistencies and underreporting.

The Role and Implications of Form 1099-DA: Form 1099-DA is designed to enhance tax compliance and precision by obligating brokers to report transactions systematically. While this may streamline tax filing for digital asset investors, it places an emphasis on meticulous record-keeping to guarantee accurate submissions.

Brokers’ Reporting Responsibilities: Obligations to issue Form 1099-DA extend to "brokers" orchestrating digital asset sales or exchanges. Broadly defined by the IRS, these include trading platforms, payment processors, and hosted wallet services. However, entities like decentralized finance (DeFi) platforms and personal wallets are generally exempt from this requirement.

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Recipients of Form 1099-DA: U.S. taxpayers engaged in the sale, trade, or disposal of digital assets through qualifying brokers should anticipate receiving Form 1099-DA from early 2026 for their 2025 transactions. This directive includes individuals and businesses involved in varied digital asset activities, including buying, selling, trading, mining, or staking. Additionally, real estate transactions utilizing digital currency must also be reported.

Details Captured by Form 1099-DA: The form demands comprehensive data about each transaction such as:

  • Payer and recipient details.

  • Specifics like asset name, quantity, date, time, and total proceeds.

  • Cost basis (compulsory for “covered securities” acquired post-January 1, 2026). In 2025, brokers may voluntarily report cost basis.

  • Transaction holding periods.

  • Transaction type and Fair Market Value (FMV).

  • Transaction fees and related wash sales for tokenized securities.

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Special Considerations for 2025: In particular, there's a spotlight on the voluntary nature of cost basis reporting for the 2025 tax year. In absences of this data, the IRS could default to a zero cost basis, which may provoke alerts for underreported income. Taxpayers are advised to securely maintain detailed transaction records including acquisition data, associated costs, fees, date of sale, and sales proceeds for accurate form completion, like Forms 8949 and Schedule D.

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Distinctive Reporting Rules for Stablecoins and NFTs: Certain digital assets have unique reporting requirements:

  • Qualifying Stablecoins: From 2025, brokers can report aggregated stablecoin transactions surpassing $10,000 annually.

  • Specified NFTs: As of 2025, brokers must detail NFT sales exceeding $600, with potential aggregate reporting methods.

Integrating Form 1099-DA for Taxation: Form 1099-DA harmonizes with tax filings similarly to stock transactions on Form 1099-B, translating into Forms 8949 and Schedule D. This entails aligning the reported 1099-DA details with personal records, assessing capital gains or losses, and documenting the results on Form 1040.

How Crypto Investors Can Prepare: In light of these developments, digital investors should diligently track all transactions, employ crypto tax software for efficiency and accuracy, and remain aware of any reporting limitations, notably the cost basis for 2025. Even transactions absent from a 1099-DA remain reportable. Staying updated with tax reforms and consulting professionals will ensure compliance.

IRS’s Digital Asset Question: The IRS has queried taxpayers on their digital asset involvement on Form 1040, asking if they received or disposed of digital assets. The introduction of Form 1099-DA amplifies the IRS's ability to verify declarations, underscoring the necessity of truthful reporting under penalty of perjury.

For comprehensive guidance on including crypto transactions in your tax filings, reach out to our office.

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