2024 was a landmark year for cryptocurrency taxation in the United States. The Internal Revenue Service (IRS) took significant steps to clarify the tax treatment of digital assets, including the release of a draft Form 1099-DA. This new tax form is specifically designed for reporting digital asset transactions, marking a significant step toward increased tax compliance in the crypto industry.
While the IRS has been working tirelessly to streamline crypto tax reporting, there are still many questions and uncertainties surrounding the implementation of Form 1099-DA. As a crypto holder in the US, it’s crucial to understand how this new form will impact your tax obligations and what you need to do to ensure accurate reporting.
In this blog post, we’ll delve into Form 1099-DA, exploring its purpose, the information it includes, and the implications for both individual taxpayers and cryptocurrency exchanges. We’ll also discuss potential challenges and best practices to navigate the evolving crypto tax landscape.
What is Form 1099-DA?
Form 1099-DA, also known as the 1099-Digital Asset, is a new tax reporting form introduced by the IRS in the United States. This form is specifically designed for reporting cryptocurrency transactions, making it easier for taxpayers and the IRS helping in keeping track of digital asset activities. It applies to crypto brokers, who must provide this form to customers starting in 2026 for transactions carried out during the 2025 tax year.
One key aspect of Form 1099-DA is its impact on calculating the cost basis of cryptocurrencies. The cost basis determines how much profit or loss is made from buying and selling digital assets. With this form, taxpayers will need to ensure accurate reporting of gains and losses based on the new rules. This change aims to improve transparency in the cryptocurrency space and ensure compliance with tax regulations.
Why Is Form 1099-DA Created By the IRS?
The IRS introduced Form 1099-DA to improve how cryptocurrency transactions are reported. This move stems from the Infrastructure Investment and Jobs Act signed into law by President Biden in November 2021.
The law mandates that cryptocurrency exchanges must report their users’ capital gains and losses, ensuring better tax compliance. Before this, taxpayers were expected to self-report, but inconsistent reporting often led to gaps in tax filings.
The push for Form 1099-DA arose from concerns voiced by the crypto community. Critics highlighted that the decentralized and complex nature of crypto made accurate reporting challenging. For instance, tracking gains or losses across multiple wallets or platforms complicates tax calculations. Despite these challenges, the IRS sought a solution to address non-compliance while acknowledging the limitations.
Although Form 1099-DA aims to streamline tax reporting for crypto transactions, it doesn’t eliminate the unique obstacles associated with tracking decentralized digital assets.
How's It Different From Other 1099s?
Form 1099-DA is specifically designed to report cryptocurrency transactions, setting it apart from other forms like the 1099-B that is used for stocks. While both forms deal with income or transactions that aren’t tied to employment, the key difference lies in the assets involved. The IRS treats cryptocurrencies as property, not currency, meaning their tax treatment differs significantly from stocks or traditional investments.
The 1099-DA form caters to the unique characteristics of digital assets. Unlike stocks, cryptocurrencies can undergo hard forks, airdrops, and other events that complicate tax reporting. These events don’t apply to traditional assets like stocks, making crypto tax reporting more complex.
Additionally, the decentralized nature of crypto platforms and the global reach of crypto transactions further complicate matters. The 1099-DA form accommodates these complexities by being tailored specifically to handle the challenges posed by cryptocurrencies, something general 1099 forms can’t address effectively.
Who Needs To Submit Form 1099-DA?
If you’re a broker facilitating crypto trades, you must file this form. But who qualifies as a broker? The IRS defines a broker as an entity “in a position to know” the identities of parties involved in digital asset transactions. This broad definition includes various players in the crypto ecosystem. Therefore, it is important to note that not all are required to submit the form.
Entities That Must Submit Form 1099-DA
The IRS lists five categories of brokers who need to file Form 1099-DA:
- Kiosk Operators: These include Bitcoin ATM providers who facilitate crypto withdrawals and deposits.
- Digital Asset Payment Processors: Both centralized and decentralized exchanges fall under this category.
- Hosted Wallet Providers: Services offering custody of private keys for users qualify as brokers.
- Unhosted Wallet Providers: Entities facilitating transactions for self-custodied wallets are also considered brokers.
- Others: Any other platform meeting the IRS’s “position to know” requirement may need to comply.
This list has raised concerns, especially regarding unhosted wallets, which many argue are too decentralized to fit the broker definition.
However, the IRS is still refining the broker definition for Form 1099-DA, leaving room for changes. Legal battles, such as Coinbase’s dispute with the SEC, have influenced the discussion. A judge recently ruled that Coinbase’s wallet operations don’t qualify as brokerage activity, adding hope for reducing overreach. Crypto investors and service providers should stay updated on these developments to understand their obligations fully.
Who Does Not Need To File Form 1099-DA?
Certain parties are exempt from filing Form 1099-DA. These include miners, node operators, and software developers who only indirectly support transactions. For example, smart contract developers earning income through their code are not considered brokers unless they actively maintain or update the contract. The IRS aims to avoid burdening these individuals with reporting requirements they can’t fulfil.
What Information is Reported on Form 1099-DA?
This new form focuses on reporting the sale or disposition of digital assets, including cryptocurrencies, stablecoins, and NFTs. Here’s a breakdown of what you can expect to see:
- Acquisition Date: The form includes the date you purchased or acquired the digital asset. This is crucial for calculating holding periods and determining whether the transaction is subject to long-term or short-term capital gains tax.
- Cost Basis: It reports the original price you paid to acquire the asset. This figure helps determine your profit or loss when you sell or dispose of the digital asset.
- Sale or Disposition Date: The date you sold, swapped, or otherwise disposed of the digital asset is clearly outlined. This is a key component in calculating your tax obligations.
- Sales Proceeds: The form specifies the total amount you received from selling or swapping your asset. It provides a clear record of the transaction’s financial outcome.
We have explained below the information more elaborately:
Cost Basis
Form 1099-DA reports important details about your crypto transactions, including the cost basis. The cost basis, shown in Box 1g, reflects the original value of your crypto asset for tax purposes. This section should provide an itemized list of each transaction and the total cost basis across all transactions.
However, brokers may leave this box blank in certain cases, such as if the asset was transferred from another broker, acquired before January 1, 2023, or sold before January 1, 2026. If you find a blank cost basis, the IRS recommends calculating it yourself.
Pro Tip: Due to the nature of cryptocurrency trading, many transactions may have a missing cost basis. Do not rely on Form 1099-DA to report an accurate cost basis. Instead, create your report using crypto tax software like KoinX or consult an experienced professional.
Sale Proceeds
Box 1f on Form 1099-DA reports the sale proceeds from your cryptocurrency transactions. This includes both itemized details for each sale and the total sum. It’s important to carefully review this figure, as it may appear higher than your actual taxable amount, potentially leading to overestimating your capital gains tax liability.
Additionally, boxes 7a and 7b distinguish whether you received cash or non-cash proceeds. This helps the IRS understand whether you cashed out your crypto or traded it for another asset.
Pro Tip: Box 3a asks the broker to specify whether the reported proceeds are gross or net. Many taxpayers may confuse net proceeds with capital gains, but the instructions clarify that net proceeds relate to proceeds from options trading, not necessarily the amount of taxable gains.
Code System for Digital Assets
Form 1099-DA also requires specific information about the digital assets you’ve transacted with. Box 1a is labeled “code for the digital asset,” indicating that the IRS will assign a unique code for each digital asset. However, the IRS has yet to release the full code system. As a result, not all digital assets will likely be included in the initial list.
For assets not assigned a unique code, box 1b will allow brokers to enter the name of the digital asset, using the code “999999” in box 1a. This code likely represents assets that don’t have a specific code. Many transactions, especially those involving altcoins, may use the “999999” code for assets that fall outside the listed categories.
Time and Date of Reporting Digital Assets
Boxes 1d and 1e on Form 1099-DA are for reporting the date and time when digital assets are acquired and disposed of. Brokers will typically use Coordinated Universal Time (UTC) to report these details, as this is the standard practice in the crypto industry.
However, brokers may leave these fields blank in certain situations. For example, if an asset was acquired at different times or if the broker is unaware of the exact acquisition time—something that often happens when assets are transferred between wallets or accounts.
This common issue emphasizes the importance of investors maintaining their records of crypto transactions, rather than relying solely on Form 1099-DA for tax filing.
Wash Sale Rules
A notable feature on Form 1099-DA is the inclusion of a box for reporting “wash sale loss disallowed.” Currently, the wash sale rules do not apply to cryptocurrency transactions, meaning that you can sell crypto at a loss and repurchase it within 30 days without triggering any disallowed loss. This loophole gives crypto investors a significant tax advantage, as they can harvest tax losses and still maintain their positions.
A wash sale typically occurs when an asset is sold at a loss and then repurchased or replaced with a similar asset within 30 days. Although the US Congress has previously attempted to extend these rules to cryptocurrencies, it has yet to succeed.
The presence of the wash sale box on Form 1099-DA suggests that the IRS might just be preparing for future changes to address this issue, potentially applying the wash sale rules to digital assets in the future.
Other Details About Crypto Transactions
Form 1099-DA provides additional important details regarding your crypto transactions in boxes 11a through 11d and 12a through 12d. These boxes include the following information:
- Transaction ID or Hash: This unique identifier links each transaction to the blockchain, providing a reference for verification.
- Digital Asset Address: This shows the wallet address associated with the transaction, helping identify where the crypto was sent from or received.
- Amount of Crypto Sold: It reports the number of units of digital assets disposed of from each listed address, allowing you to track the quantity of assets traded.
- Distributed Ledger Checkbox: This indicates whether the sale was recorded on the blockchain, confirming the transparency of the transaction.
Does Form 1099-DA Reports Stablecoins And NFTs?
Form 1099-DA may report stablecoin and NFT transactions if your gross proceeds exceed certain thresholds. For stablecoins, the threshold is set at $10,000, while for NFTs, it is $600. If you meet or exceed these amounts, the IRS requires brokers to report the transactions on Form 1099-DA.
However, it’s important to note that regardless of whether your stablecoin or NFT transactions reach the reporting threshold, you must report all of them on your tax return. This means that even if your transactions fall below the required limits for Form 1099-DA, you are still responsible for reporting them accurately when filing your taxes.
When Does Form 1099-DA Rolls Out?
Form 1099-DA will start being used for cryptocurrency reporting from the 2025 financial year. This means that investors will receive their first Form 1099-DA in 2026, which will cover transactions made throughout the 2025 financial year.
The IRS has set this timeline to ensure that brokers can gather the necessary information to report on cryptocurrency trades accurately. As a crypto investor, it’s essential to stay aware of this timeline, as it will impact how your transactions are reported for tax purposes starting in 2026.
Potential Problems with Form 1099-DA
While Form 1099-DA aims to simplify crypto tax reporting, it introduces several challenges for both taxpayers and brokers.
The form’s limitations may lead to confusion, making it harder to track important details like cost basis. Industry experts have raised concerns about the unclear definition of crypto brokers, which could result in misreporting.
Additionally, the form may place an unnecessary tax reporting burden on both investors and businesses, especially when it comes to complex crypto transactions. Here’s a list of concerns that hovers in the minds of US crypto investors:
Previously Unreported Crypto
Once brokers begin issuing Form 1099-DA, the IRS will have a clearer picture of individuals who have not previously reported their cryptocurrency transactions accurately. If you have not been fully reporting your crypto activity, it is important to address the issue before it attracts the attention of tax authorities. Failure to report cryptocurrency gains and losses can potentially lead to an audit or even a criminal tax investigation.
Pro Tip: If you are in this situation, consider using the Voluntary Disclosure Program (VDP), which was expanded to include cryptocurrency in 2022. This option allows you to come forward and correct past mistakes, but it must be done proactively. Once the IRS starts an audit or investigation, you can no longer participate in the VDP.
Transferring Crypto Between Digital Asset Brokers
When you transfer crypto between different digital asset brokers, it can create challenges in accurately reporting cost-based information on Form 1099-DA. Unlike traditional stock brokers, where information sharing between platforms is common, cryptocurrency brokers do not yet have the infrastructure in place to automatically share cost basis details when assets are transferred.
Cryptocurrency transactions often involve multiple transfers, sometimes even within a single transaction, making it harder to track the exact cost basis across platforms. As a result, many taxpayers may find significant gaps in their Form 1099-DA, leading to incomplete or incorrect reporting of cost basis.
This missing information can result in inflated capital gains, potentially causing you to pay more tax than necessary if you rely solely on the form.
Self-Transfers
Many crypto investors in the USA use multiple exchanges and wallets to manage their assets. Transferring crypto between these accounts is not a taxable event. However, cryptocurrency brokers often cannot distinguish between self-transfers and taxable sales.
As a result, Form 1099-DA may incorrectly report self-transfers as taxable transactions, leading to inflated proceeds. This mismatch between your actual proceeds and the amounts reported on the form can potentially trigger an audit.
To avoid issues, it is crucial to accurately report all your transactions on Form 8949, ensuring that only taxable events are reflected in your tax filings.
Foreign Exchanges
Foreign exchanges that do not serve US customers are not obligated to issue Form 1099-DA. This creates a problem for US investors who trade on these platforms, as they will not receive the necessary information to report their crypto transactions for tax purposes.
If you transfer assets between foreign exchanges and US brokers, it becomes easier for the IRS to track your foreign accounts. Therefore, it’s important to keep detailed records of all your crypto transactions, including those on foreign platforms, to ensure accurate tax reporting and avoid potential issues with the IRS.
Conclusion
The introduction of Form 1099-DA signifies a new era of crypto tax reporting. While it simplifies the process for many, it’s essential to stay informed and compliant. By understanding the nuances of this form and leveraging the right tools, you can navigate the complexities of crypto taxes with ease.
Ready to simplify your crypto tax journey? KoinX, a leading crypto tax platform, can help you accurately calculate your crypto taxes and generate IRS-compliant tax reports. Try KoinX today and experience the difference.
Frequently Asked Questions
Will Form 1099-DA Include Everything Needed to File Crypto Taxes?
No, Form 1099-DA likely won’t ask for all the information required for accurate crypto tax filing. While it offers some data, it may not include critical details, such as cost basis or other types of crypto income like staking and mining rewards. Without these, you’ll need to gather additional information to ensure your tax return is complete and accurate.
Will Form 1099-DA Simplify Crypto Tax Filing?
Not necessarily. Form 1099-DA may include a blank cost basis section if the issuer doesn’t have the necessary information. If you’ve moved cryptocurrency across wallets or exchanges, you’re responsible for tracking the cost basis for each transaction. This lack of comprehensive data can complicate tax calculations, especially for those who use multiple platforms for crypto trading and investments.
How Should I Prepare for Form 1099-DA?
To stay ahead of the upcoming crypto tax changes, maintain detailed records of all your crypto transactions and comply with current IRS tax reporting rules. Tools like KoinX can assist by securely storing your transaction history and calculating tax liabilities in line with existing regulations. Use platforms like KoinX to simplify the process and prepare effectively for the new reporting standards.
What Happens If I Don’t Report Income from Form 1099-DA?
Failing to report income listed on Form 1099-DA can lead to serious repercussions. The IRS may issue a warning letter regarding unpaid taxes. Continued non-compliance can result in fines, penalties, or even an audit. To avoid these outcomes, ensure all income, including crypto-related gains, is properly reported on your tax return.
