IRS Prepares Launch of New Crypto Tax Form 1099-DA for 2025 Tax Year

The Internal Revenue Service has unveiled a draft of Form 1099-DA, a new tax document that will for the first time require digital asset brokers to report transaction proceeds to both taxpayers and the government. The reporting requirement, which stems from the 2021 Infrastructure Investment and Jobs Act, is set to take effect for all digital asset transactions occurring on or after January 1, 2025, meaning businesses and individual investors will begin receiving the forms in early 2026. The move marks a significant shift in the U.S. government's approach to cryptocurrency tax compliance. Previously, the IRS relied on taxpayers to self-report all transactions without a corresponding third-party information return from exchanges, similar to the Form 1099-B used for stock sales. The introduction of Form 1099-DA is intended to increase tax compliance and transparency in the digital asset space, where surveys have indicated a significant portion of investors may not be properly reporting their tax obligations. While the introduction of Form 1099-DA is presented as a step toward simplification, in our experience, it will introduce significant new complexities for small and mid-sized businesses. The form only reports gross proceeds, leaving the most difficult part of the calculation—determining the cost basis for every single transaction—entirely on the taxpayer. This is especially challenging in the fragmented crypto ecosystem, where assets move between multiple exchanges and private wallets, creating a disconnected data trail that a single broker's 1099-DA cannot capture. We anticipate this new data-matching capability for the IRS will trigger a wave of automated notices and audits for businesses with even minor discrepancies. Proper preparation is no longer optional. This is precisely the type of challenge where our tax preparation and compliance services become critical. C&S Finance Group LLC helps businesses establish robust tracking systems and reconcile their transaction history against these new forms. Contact us at csfinancegroup.com to ensure your business is prepared for the 2025 tax year. Under the new regulations, brokers such as cryptocurrency exchanges will be mandated to issue Form 1099-DA to any customer who has sales or exchanges of digital assets. The form will detail the gross proceeds from these transactions, which is the total amount received from the sale before accounting for any costs, fees, or the original purchase price of the asset. A copy of this form will be sent to the taxpayer and an identical copy will be filed with the IRS, creating a direct information trail for the agency. This new process mirrors the long-standing system for securities transactions but poses unique challenges for digital assets. Unlike stocks, which are typically held with a single broker, a business's cryptocurrency holdings may be spread across numerous exchanges, software wallets, and hardware devices. A Form 1099-DA from a single platform like Coinbase will only represent a fraction of a company's total activity, placing the burden squarely on the business to consolidate all transaction data from every source. Furthermore, the form does not eliminate the need for detailed record-keeping. Taxpayers are still required to calculate their capital gains and losses on Form 8949, Sales and Other Dispositions of Capital Assets. To do this accurately, they must track the cost basis—the original value of an asset for tax purposes—for every digital asset they acquire and sell. The 1099-DA will not contain this cost basis information, and tax professionals warn that the proceeds reported by brokers may be incomplete or inaccurate, requiring careful reconciliation with the taxpayer's own records. For businesses that use cryptocurrency for operational purposes, the compliance burden extends beyond capital gains. Other common transactions can trigger different reporting requirements. For instance, income earned from staking activities or promotional airdrops may be reported on Form 1099-MISC if it exceeds $600. If a business pays a contractor or freelancer in cryptocurrency, it may be required to issue a Form 1099-NEC for non-employee compensation. Failure to properly report crypto transactions will now carry a much higher risk of detection. With the IRS receiving direct data from brokers, its automated systems can easily flag discrepancies between the amounts reported on Form 1099-DA and the figures on a business's tax return. Intentionally failing to report cryptocurrency gains is considered tax fraud, which can lead to severe penalties including criminal prosecution, up to five years in prison, and fines as high as $250,000. As Form 1099-DA is still in its draft phase, tax professionals and businesses should continue to monitor updates from the IRS and the Treasury Department for final rules and instructions. With the reporting mandate beginning in just over six months, businesses that transact in digital assets are advised to use the remainder of 2024 to implement robust tracking and accounting systems to prepare for the new, more stringent compliance environment.