As tax season approaches, millions of Americans are gearing up to prepare their 2024 tax returns. However, for those involved in cryptocurrency transactions, a significant shift is on the horizon.
Starting in 2025, new third-party reporting requirements will compel centralized crypto platforms like Coinbase and Gemini to report users’ transactions directly to the IRS (Internal Revenue Services).
This landmark move is designed to improve tax compliance and transparency in the burgeoning digital asset market.
Centralized platforms under the microscope
The IRS has announced that beginning with the 2025 tax year, custodial platforms dealing in cryptocurrencies will be required to provide transaction data on a new tax form, the 1099-DA.
This form, which will be sent to both taxpayers and the IRS in early 2026, will include detailed records of purchases and sales conducted on these platforms.
According to the IRS, brokers obligated to comply include custodial trading platforms, hosted wallet providers, and certain payment processors handling digital assets.
While brokers are not required to report cost basis — the original purchase price of a digital asset used to calculate taxable gains — until 2026, they will document gross proceeds from transactions starting in 2025.
The IRS has emphasized that the new rules are not introducing additional taxes but are aimed at ensuring taxpayers meet their existing obligations.
Failure to include 1099-DA information on 2025 tax returns could trigger discrepancies, as the IRS will already have the data on file.
Decentralized exchanges: a delayed timeline
For crypto investors who prefer decentralized platforms like Uniswap or Sushiswap, the timeline for compliance is less immediate.
These platforms, which facilitate wallet-to-wallet transactions without holding custody of assets, will not be subject to third-party reporting requirements until 2027.
When these rules take effect, decentralized platforms will only report gross proceeds from transactions.
Unlike centralized exchanges, they will not provide cost-basis information since they do not manage or store users’ digital assets.
In a CNN report, Jessalyn Dean, Vice President of Tax Information at Ledgible, a crypto tax software company, underscores the importance of personal record-keeping for users of decentralized platforms.
Without comprehensive reporting from these exchanges, taxpayers will bear greater responsibility for accurately calculating their taxable gains and losses.
Bitcoin ETFs and taxable events
The rise of spot bitcoin exchange-traded funds (ETFs) has added another layer of complexity to crypto tax reporting.
Investors in these funds should be aware that they too will receive 1099-B or 1099-DA forms from ETF providers.
Unlike traditional stocks, bitcoin ETFs may generate taxable events even without direct sales by investors.
This is because ETF managers often sell portions of their holdings to cover expenses, creating gains or losses that are passed on to shareholders.
“there’s a gain or loss on the sale inside the fund and investors will have to calculate their applicable portion of that,” Dean explained.
Dean advises bitcoin ETF investors to consult tax professionals to ensure compliance with these nuanced rules.
The introduction of the 1099-DA form is part of a broader effort by the IRS and the US Treasury to simplify tax compliance in the digital asset space.
Ledgible CEO Kell Canty explains that these reporting requirements are not a new tax but a mechanism to reduce inadvertent errors and improve transparency.
The US Treasury has echoed this sentiment, stating that the changes aim to remind taxpayers of their obligations and streamline the filing process.
By ensuring that more transactions are reported, the government hopes to close gaps in compliance and reduce the administrative burden on taxpayers.
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