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As tax season approaches, cryptocurrency investors should be aware of a major change in how digital asset transactions will be reported. The IRS is introducing a new form, the 1099-DA, that will change how you report crypto activities. Here’s what you need to know to stay prepared.

What is Form 1099-DA?

Form 1099-DA, short for “Digital Asset Proceeds From Broker Transactions,” is a new tax document that brokers will use to report your digital asset sales and exchanges to both you and the IRS. This form will cover transactions involving cryptocurrency and other digital assets.

When Does This Take Effect?

The new reporting requirements kick in on January 1, 2025. This means any digital asset transactions you make in 2025 will show up on Form 1099-DA, which you’ll receive in early 2026.

What Information Will Be Reported?

Form 1099-DA will include key details about your transactions, such as:

  • The date you acquired and sold your digital assets
  • How much you paid and how much you made
  • Whether you had a gain or a loss
  • The type of transaction (e.g., sale, exchange)
  • The fair market value at the time of the transaction

Who Will Receive Form 1099-DA?

If you’ve traded or sold digital assets through a broker, exchange, or platform (like Coinbase, Kraken, or Gemini), you’ll likely receive a Form 1099-DA. However, if you’ve only held digital assets without trading, or you’ve only used decentralized platforms or personal wallets, you might not get this form.

Why This Matters for Your Taxes

  • More Accuracy: Form 1099-DA will give you clear, standardized information to help you report your crypto transactions accurately on your tax return.
  • Greater IRS Oversight: The IRS will receive a copy of this form, making it easier for them to verify your reported transactions.
  • Simplified Reporting: Having all this info in one place should make reporting your crypto gains and losses easier.

What You Should Do to Prepare

  • Keep Good Records: Start tracking all your digital asset transactions now so you’re ready when the new form is introduced.
  • Know Your Obligations: Even if you receive a Form 1099-DA, it’s still your responsibility to report all taxable crypto transactions, even those not covered by the form.
  • Stay Updated: Watch for further IRS updates on digital asset reporting.
  • Consult a Pro: Crypto taxes can get complicated. Working with a tax professional who knows the ins and outs of digital assets can help you stay compliant.

One Form Per Transaction: What This Means for You

An important aspect of Form 1099-DA is that it will be issued for each individual digital asset transaction, rather than providing a summary of all your trades. This level of detail has significant implications:

  • Volume of Forms: If you’re an active trader, you might receive numerous 1099-DA forms. For instance, if you made 100 trades in a year, you could potentially receive 100 separate forms.
  • Detailed Record-Keeping: This transaction-by-transaction reporting emphasizes the need for meticulous record-keeping. Each trade, no matter how small, will be reported to the IRS.
  • Increased Complexity: Managing multiple forms could make tax preparation more complex, especially for those who engage in frequent trading.
  • Enhanced Accuracy: While potentially overwhelming, this detailed reporting should lead to more accurate tax filings, as each transaction will be clearly documented.
  • Impact on Tax Preparation Time: Dealing with multiple forms may increase the time needed to prepare your taxes. Plan accordingly and consider starting your tax preparation earlier than usual.
  • Importance of Organization: Develop a system to organize and store these forms as you receive them. Digital storage options might be particularly useful given the potential volume.

How to Prepare for Multiple Forms

  • Use Tracking Software: Consider using cryptocurrency portfolio tracking software that can help you manage and categorize your transactions throughout the year.
  • Regular Reviews: Don’t wait until tax season. Review your transaction history regularly to ensure it aligns with your records.
  • Seek Professional Help: With the increased complexity, working with a tax professional experienced in cryptocurrency may be more valuable than ever.
  • Stay Informed About Exchange Policies: Some exchanges may offer consolidated reporting options. Stay informed about how your preferred platforms plan to handle Form 1099-DA issuance.

Final Thoughts

While Form 1099-DA marks a big shift in how crypto transactions are reported, it’s meant to make the process easier and ensure better compliance. By staying informed and keeping good records, you can handle these changes smoothly and meet all your tax obligations.

Remember, even though Form 1099-DA won’t be issued until 2026, you still need to report all taxable crypto income for the current tax year. Stay on top of things, and don’t hesitate to seek our advice if you’re unsure about your reporting requirements.

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