Cryptocurrency investors will face new reporting requirements under the United States Internal Revenue Service (IRS). These changes mark a significant shift in how cryptocurrency transactions will be tracked and reported, particularly for investors using centralized platforms such as Coinbase, Gemini and others. Centralized exchanges will now be required to report detailed transaction information to the IRS, which will impact how digital assets are taxed.
The New Rule: What Cryptocurrency Investors Need to Know
As part of an effort to ensure better tax compliance, the IRS is implementing new reporting standards for centralized cryptocurrency exchanges. Starting in 2025, these platforms, including custodial wallet providers and some payment processors, will be required to submit transaction data via a new form: 1099-DA. This form will include a detailed record of purchases and transfers of digital assets.
Form 1099-DA will be sent to both the investor and the IRS in early 2026, meaning all cryptocurrency investors will need to include this information in their 2025 tax returns. This change is intended to reduce discrepancies between taxpayer-reported numbers and IRS records, as the agency already has access to transaction data.
Delay in Base Cost Declaration
Although the new reporting rules apply to all cryptocurrency transactions starting in 2025, reporting of cost basis — the initial purchase price of a digital asset — will not be required until the year tax 2026. For investors, this delay could cause complications, especially since the cost basis is crucial in determining gains or losses on assets sold.
Jessalyn Dean, vice president of tax information at Ledgible, noted that this delay could make it difficult to accurately calculate taxable gains and losses for 2025. Since the IRS will already have the transaction data, investors will have to keep their own records or use tax software to ensure accurate reporting.
Decentralized Platforms: A Different Timeline
While centralized exchanges will be required to comply with these reporting standards in 2025, decentralized platforms such as Uniswap and Sushiswap are not expected to implement third-party reporting until 2027. These platforms will only need to report gross proceeds from transactions, and not the base cost, due to lack of access to original purchase prices. This difference highlights the challenges faced by decentralized finance (DeFi) platforms, which do not have the same control as centralized exchanges.
Bitcoin ETFs and the Reporting Change
In addition to centralized exchanges, the new IRS reporting requirements will also apply to Bitcoin exchange-traded funds (ETFs). Bitcoin ETF providers will issue forms like the 1099-B or 1099-DA, which will cover proceeds from any taxable events occurring within the fund.
Investors holding Bitcoin ETFs are advised to consult tax professionals, as there could be tax implications related to internal management activities within the fund, even if the assets are held long-term. Understanding these tax responsibilities is essential to avoiding unexpected tax bills.
-IRS Offers Relief to Centralized Finance Users
In anticipation of the implementation of the new reporting rules, the IRS recently announced automatic relief for users of centralized finance (CeFi) platforms. This relief allows users to delay action on the new reporting requirements at this time. However, once the rules come into effect in 2025, CeFi users will need to be prepared to report their transactions accurately.
An important aspect of the new rules concerns accounting methods. Taxpayers will have to choose an accounting method with their brokers by 2026. The default method, First In, First Out (FIFO), could result in higher tax liabilities for some cryptocurrency investors. However, investors can avoid this outcome by keeping their own records or using tax software that allows for more accurate tracking.
Preparing for the 2025 Crypto Tax Season
As the IRS imposes stricter reporting rules for cryptocurrency investors, it is crucial that everyone involved in cryptocurrency trading remains informed and prepared. The introduction of Form 1099-DA marks the start of a new era in cryptocurrency tax reporting, and investors should ensure they comply with the new rules to avoid penalties or discrepancies.
The new IRS measures aim to ensure greater transparency and accountability in the crypto space, helping to align cryptocurrency transactions with traditional asset classes. By maintaining accurate records of all crypto activity and understanding the implications of cost basis reporting, investors will be able to navigate the upcoming tax season with confidence.
Stay Compliant and Informed
With the 2025 tax season approaching, cryptocurrency investors should familiarize themselves with these new IRS regulations. The transition to third-party reporting will likely affect how crypto transactions are tracked and reported, and understanding these changes will be essential to remaining compliant.
Investors should also consider using crypto tax software or consulting tax professionals to ensure their transactions are reported accurately. Anticipating these changes will help cryptocurrency traders avoid potential complications and ensure they meet all their necessary tax obligations.
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