With year-end approaching, it’s a superb time to make sure that your tax home is so as. It’s especially essential for crypto investors, given a brand new IRS brokerage reporting requirement covering transactions after Jan. 1, 2025.
The IRS generally treats crypto like property, much like stocks or real estate, so selling crypto can trigger a capital gain or loss. And while crypto investors must have been keeping good records all along, the brand new reporting requirement gives them a good more compelling reason. That is because brokerages now should send what’s generally known as a Form 1099-DA. For tax 12 months 2025, they’re required to report gross proceeds for every digital asset sale the broker processes. In 2026 and beyond, it’s mandatory for brokers to report gross proceeds and price basis information for covered securities.
Because brokers have not needed to issue 1099s for selling or exchanging crypto up to now, it was easier for people to act as tax cheats, said Ric Edelman, financial advisor, writer and founding father of the Digital Assets Council of Financial Professionals. “Many individuals mistakenly imagine that there is not any reporting obligation,” Edelman said.
As crypto investors do their tax planning for a 12 months which saw bitcoin rise to latest heights, but more recently endure an enormous selloff that has shaved over $40,000 off its record price, it is vital to grasp the brand new, stricter recordkeeping requirements.
For example you purchased ethereum for $1,500 and paid a $50 transaction fee, your cost basis can be $1,550, based on an example provided by Coinbase. “Essentially, your gain or loss is the difference between the gross proceeds and the associated fee basis. In case you sold that 1 ETH for $2,000, your taxable gain can be $450 ($2,000 – $1,550).”
Get your crypto recordkeeping so as now
Brokers are required to report the associated fee basis information for tax 12 months 2026, and should you have not been keeping good records up to now, you are going to have to begin. “It is a taxpayer’s responsibility to trace and substantiate whatever cost basis they’re providing,” said Daniel Hauffe, senior manager for tax policy and advocacy at The American Institute of Certified Public Accountants.
For a lot of crypto investors, this will likely be complicated, especially in the event that they transferred their tokens to a broker after holding them elsewhere and have not kept careful records. In that case, the broker won’t have the quantity you bought the crypto for; the broker would only know the worth if you transferred it, Hauffe said.Â
Ideally, taxpayers should attempt to iron out these issues now, before brokers are required to report the idea, and that will require talking to a certified tax skilled.
Crypto investors who’ve been keeping track of their holdings haphazardly up to now also needs to consider hiring a tax crypto recordkeeping provider. There are various these services, including ProfitStance, Taxbit, TokenTax and ZenLedger.
Edelman said it is best to make use of a recordkeeping provider due to the complexities involved. “In case you try to do that manually, it’s complicated and also you’re prone to make errors,” he said.
Crypto staking, and staking ETFs, to be a serious tax focus
While the IRS issued core guidance concerning the tax treatment of cryptocurrency greater than a decade ago, the market has modified significantly since then, underscoring the necessity for updated guidance in several areas.Â
In 2024, the IRS, in Notice 2024-57, said it was continuing to check several types of crypto transactions to find out appropriate taxation. This has left many taxpayers in limbo and scratching their heads on report certain varieties of transactions. While the IRS has said it won’t impose penalties for limited varieties of transactions while the regulations are being ironed out, taxpayers still should keep careful records so that they can appropriately account for them.
One area wherein cryptocurrency investors are awaiting direction is staking transactions. Guidance on this and other varieties of more complicated crypto transactions are expected next 12 months, Edelman said. Some advocates say taxes should only be applicable on the time these rewards are spent, sold, or otherwise disposed of. To date, nonetheless, the IRS has said that these rewards needs to be taxed as income upon receipt, Hauffe said.Â
Additional guidance in staking specifically may very well be especially essential now that the IRS has confirmed exchange-traded funds issuers can provide staking rewards, said Zach Pandl, head of research at Grayscale, a digital asset-focused investment platform. The provision of cryptocurrency inside ETFs has widened the playing field for odd investors to realize some exposure to the asset class, and the most recent guidance suggests more investors will face tax consequences from staking rewards. “Staking rewards are increasingly common for investors because they’ve now been activated in ETFs,” Pandl said.
Bitcoin’s big drop may very well be a tax-loss advantage
For some crypto investors, there could also be a possibility in the following month or so for tax-loss harvesting, which involves selling investments at a loss and using those losses to offset gains in other investments, Pandl said.
Bitcoin’s struggles since its record highs in October could present a possibility for investors to profit from a tax perspective, depending on after they bought the crypto. Some investors could also profit from tax-gain harvesting, a method that involves selling the investment if you think it’ll have the least impact in your taxes.Â
“That is the time to be desirous about that and planning for it,” said Stuart Alderoty, president of the National Cryptocurrency Association, a non-profit focused on crypto education. “You may harvest gains and you’ll be able to harvest losses as well,” he said.
Many accountants don’t understand digital assets
Taxation depends largely on an individual’s tax bracket and whether or not they are short-term or long-term gains. For instance, should you’ve held the crypto for greater than a 12 months, profits are subject to long-term capital gains rates of 0%, 15% or 20%. If the crypto was held for lower than a 12 months, odd tax rates between 10% to 37% apply.
As a result of the complexity and unique nature of crypto, determining taxation is complicated by other aspects, especially since IRS rules about crypto are in flux. As one example, it can be crucial to make sure that to report the crypto transaction on the appropriate form. For instance, should you sold, exchanged or otherwise disposed of a digital asset you held as a capital asset, use Form 8949. In case you were paid as an worker or independent contractor with digital assets, report the digital asset income on Form 1040, U.S. Individual Income Tax Return.
On top of that, many crypto owners are confused concerning the federal income tax query pertaining to digital assets. On the primary page, near the highest, they’re asked to discover whether at any time in the course of the tax 12 months, they either received (as a reward, award or payment for property or services) or sold, exchanged or otherwise disposed of a digital asset.Â
Many individuals think “received” means buy, but it surely doesn’t, Edelman said. Somewhat, the IRS says it refers to digital assets received for payment for property or services provided, a reward or award, mining, staking and similar activities or an airdrop because it pertains to a tough fork.
For these and other issues regarding crypto taxation, make sure that you are talking to a tax advisor who’s knowledgeable about crypto. “Most accountants aren’t because they have not had any training on this area,” Edelman said.
