The US Treasury Department and Internal Revenue Service have moved closer to their goal of ensuring everyone who participates in the buying and selling of cryptocurrencies reports their transactions to the IRS and pays their taxes. The annual reporting will start at the beginning of 2026. As of now, this rule only applies to custodial platforms that take possession of customer assets, such as Kragen and Coinbase.
This new rule requires custodial brokers to report certain sales and exchange transactions. The document for reporting transactions will be IRS Form 1099-DA. IRS Commissioner Danny Werfel recently remarked, “These regulations are an important part of the larger effort on high-income individual tax compliance. We need to make sure digital assets are not used to hide taxable income.” Werfel also stated that these regulations will simplify the procedures for reporting cryptocurrency activities. As of now, the regulations do not include reporting for decentralized and non-custodial brokers. However, the Treasury Department and IRS will soon release regulations comprised of a separate set of requirements for these brokers.
The simplified regulations for custodial brokers and taxpayers will be limited to:
The name, address, and taxpayer ID number of the payer;
Transaction ID;
Gross proceeds (dollars or goods and services at fair market value);
Consideration received for cryptocurrencies, which can be determined via a digital asset aggregator; and
The information needed to identify a wallet and the amount originally transferred to that wallet.
The direct purchase of goods and services with cryptocurrencies typically will not be subject to reporting. Exceptions to this will include real estate and stock transactions.
Investors will be required to report all sales of digital assets, as well as capital gains and losses, on their tax return. The IRS will consider exchanging one cryptocurrency for another to be a taxable transaction. Taxpayers will be obligated to report these actions and determine all capital gains or losses based on their fair market value for digital assets that are sold or acquired. Thus, taxpayers must check “yes” on their tax return if they have received or disposed of cryptocurrencies and pay their taxes.
If you have questions or need advice concerning the taxes on cryptocurrency transactions, consider contacting your tax professional. We gladly provide complimentary advice to our clients.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information, call 661-259-1967 or visit www.scvprotaxservices.com.