In August 2023, the Treasury Department announced proposed guidelines that could change the cryptocurrency ecosystem forever. Starting in the 2025 tax year, cryptocurrency exchanges — including centralized and decentralized exchanges — will be required to issue Form 1099-DA for capital gains and losses.
According to crypto tax experts, these proposed requirements will likely cause confusion for crypto investors across the country during tax season.
In this guide, we’ll break down everything you need to know about Form 1099-DA and how it will impact crypto investors like you.
What is Form 1099-DA?
1099 forms are designed to report non-employment-related income to the IRS.
If you’ve used platforms like Robinhood and E*Trade, it’s likely that you’ve received a 1099 form in the post. Stockbrokers issue Form 1099-B to customers and the IRS to report capital gains and losses.
Form 1099-DA (Digital Asset) is a new tax form designed specifically to report gains and losses from crypto-assets. Like other 1099 forms, Form 1099-DA will be issued to customers and the IRS.
Who is required to issue Form 1099-DA?
According to the proposed guidance from the Treasury Department, the following parties will be required to issue Form 1099-DA starting in the 2025 tax year:
- Centralized exchanges
- Decentralized exchanges
- Certain wallet providers that support crypto trading services
These proposed policies will lead to a significant change in how taxable income from crypto is reported. Currently, most cryptocurrency platforms do not issue tax forms detailing capital gains and losses.
Will Form 1099-DA solve the issues around crypto tax reporting?
Because wallet-to-wallet transfers are so common in cryptocurrency, exchanges often have trouble tracking crypto transactions for tax purposes. It’s unlikely that Form 1099-DA will solve these issues.
To better understand the difficulties behind tracking crypto taxes, let’s take a look at an example.
James buys $3,000 of BTC on Exchange A.
He transfers his crypto to his cold wallet.
James sells $5,000 of BTC on Exchange B.
In this case, Exchange B doesn’t have information about James’s initial purchase, only his $5,000 sale. While James made $2,000 of profit, Exchange B only knows about his $5,000 disposal. As a result, it’s likely that Exchange will report James’s $5,000 sale to the IRS — with no information about how much he originally paid for his cryptocurrency.
If James hasn’t kept records of his crypto purchases, he’ll need to pay taxes on $5,000 of capital gain!
Tax experts speculate that Form 1099-DA will not require exchanges to report cost basis — in other words, the original cost of acquiring cryptocurrency. Instead, the form will instead only require exchanges to report gross proceeds — how much the taxpayer earned for selling/disposing of the cryptocurrency.
If this is true, Form 1099-DA will shift the burden of calculating capital gains and losses onto the taxpayer. If taxpayers don’t keep accurate records of their transactions, they may end up misreporting their taxes!
How do I prepare for Form 1099-DA?
If you want to prepare for mandatory 1099 reporting, you should get started keeping detailed records of your crypto transactions for tax purposes. This should include the following information:
- The type of cryptocurrency involved in the transaction
- The amount of cryptocurrency involved in the transaction
- The date you received your cryptocurrency
- The date you disposed of your cryptocurrency
- The fair market value of your crypto at receipt
- The fair market value of your crypto at time of disposal
If you’re having trouble keeping records of your transactions, you can try getting started with crypto tax software.
1099-DA reporting will likely cause issues for crypto investors during tax season. To avoid trouble from the IRS in the future, start keeping records of your cryptocurrency transactions today!