IRS Finalizes Crypto Tax Reporting Changes For 2025 – Details
In a recent development, the Internal Revenue Service (IRS) has announced the finalization of new guidelines that will require brokers, including crypto exchanges, to file 1099 forms starting from January 1st, 2025. However, it is important to note that these regulations will not initially encompass DeFi operations and non-hosted wallet providers, as separate rules will be introduced for these entities in 2026. It should also be noted that while these changes have been finalized, there is still the possibility of further adjustments before their implementation.
The release of the IRS Form 1099-DA, also known as the “broker rule” guidance, is expected to have implications for non-custodial platforms in the cryptocurrency space. Crypto exchanges will be directly affected by the new rules, which will be partially enforced in 2025. This article aims to outline the implications of these changes, the necessary actions to be taken, the effective dates, and most importantly, how to adequately prepare for them.
Here’s what you need to know about the finalized changes: starting from January 1st, 2025, brokers will be required to file 1099 forms. However, it is worth noting that DeFi operations and non-hosted wallet providers are currently exempt from this requirement. Moreover, the reporting obligation only applies to stablecoin transactions and NFT activities. This will primarily impact brokers such as trading platforms, hosted wallet services, and digital asset kiosks. Prominent crypto exchanges like Coinbase, Gemini, KuCoin, and Kraken are some examples of the entities that will be affected.
For non-custodial crypto businesses like decentralized exchanges (e.g., Uniswap) and unhosted wallet providers (e.g., Ledger or Trezor), the regulations concerning these platforms will be introduced in 2026.
What does this mean for cryptocurrency users? The 1099 form will only report the proceeds from their transactions, and brokers will not report if the proceeds are below $600, following a similar approach as the standard 1099 system currently in place. It should be emphasized that these changes will not come into effect until January 1st, 2025. Therefore, individuals will not be directly impacted until they begin working on their tax returns for 2025.
Due to the complexity surrounding the calculation of basis, brokers will be responsible for providing that information. However, individuals will need to reconcile the data to determine their net gains and losses, as this information will not be included in the 1099 form.
The IRS will receive the Know Your Customer (KYC) information provided by the brokers and exchanges. It is important to keep in mind that these regulations are subject to change, as the IRS is still in the process of finalizing the 1099-DA form. Additionally, ongoing developments in crypto reporting and other related regulations, such as the FIT21 legislation, may introduce further changes in the upcoming months. In light of these factors, it is strongly advised to seek assistance from a licensed professional in your jurisdiction to ensure accurate filing of crypto taxes.
It is crucial to stay informed as the landscape continues to evolve, ensuring compliance with the evolving regulations and reporting requirements in the cryptocurrency space.