As the federal government moves forward with new proposed regulations on cryptocurrency and other digital assets, it is important to understand what is being considered and how it will impact those looking to invest. In this article, we continue our discussion on cryptocurrency, diving deeper into reporting for digital assets and how the proposed U.S. Treasury and IRS regulations continue to give more clarity.
Digital Assets Explained
A digital asset is defined as a digital representation of value recorded on a cryptographically secured distributed ledger or similar technology. Cryptocurrency, convertible virtual currency, stablecoins, and non-fungible tokens (NFTs) are all examples of digital assets. Transactions involving digital assets are generally required to be reported on your tax return.
New Proposed Regulations
The Treasury and the IRS recently proposed new regulations on digital assets reporting as part of a broader effort to “close the gap” and address cryptocurrency tax evasion. Until now, there has been limited guidance on the tax treatment of digital assets.
The new regulations would expand the definition of a “broker” to include not only traditional brokers, such as dealers and barter exchangers, but also any party providing “facilitative services,” including digital asset payment processors, wallet providers, and others who redeem digital assets they created.
Essentially, brokers for digital assets would be subject to the same information reporting rules as brokers for securities and other financial assets. They would be required to inform the IRS about the transactions happening on their platforms, including centralized and some decentralized exchanges, crypto payment processors, and certain online wallets. Brokers would be required to file information returns and furnish payee statements based on companies engaging in various services or activities related to digital assets.
Currently, no form is dedicated to reporting annual cryptocurrency gains and losses. Under the proposed regulations, brokers would be required to provide a new form, called Form 1099-DA, to help taxpayers determine if they owe taxes.
Reporting cryptocurrency and other digital assets would begin in January 2026 for transactions made in 2025. The process would be similar to reporting sales and exchanges of investments such as stocks and bonds.
Where Things Stand
A public hearing was held in November to discuss the proposed regulations. It is important to note that they have yet to be finalized.
In the meantime, those investing in cryptocurrency or other digital assets should report their activity accurately. Also, consider amending past tax returns if you have not been reporting your crypto activity or have determined it was reported incorrectly, and keep records of all your crypto transactions.
For help with your reporting, consult with tax and finance experts at RDG+Partners at 585-673-2600.