Crypto Analyzer

IRS releases final crypto tax reporting guidance

The U.S. Department of the Treasury and IRS have recently unveiled their final tax reporting guidelines for digital asset brokers, and the implications for crypto investors are significant. The new regulations, set to take effect in the coming years, will require mandatory yearly reporting by digital currency brokers, starting from 2026. This will involve the disclosure of gross proceeds from sales in 2025 and the inclusion of cost basis for certain digital asset sales in 2026.

The goal of these regulations, according to IRS Commissioner Danny Werfel, is to prevent the misuse of digital assets for tax evasion purposes and enhance compliance in the high-risk realm of digital assets. These guidelines were enacted as part of the Inflation Reduction Act and are estimated to generate nearly $28 billion in revenue over a decade.

Crypto investors are advised to take action ahead of these changes by establishing a “reasonable allocation” for their digital currency holdings before January 1, 2025. This involves assigning a basis for each digital currency wallet by the end of 2024 to ensure accurate reporting. Failure to provide basis documentation may result in the IRS considering it as zero, potentially leading to higher taxes on profits.

It is crucial for crypto investors to be proactive in understanding and adhering to these new reporting requirements. Taxpayers are encouraged to collect and report their crypto activities accurately for the year 2024, as from 2025 onwards, the IRS will have increased access to data to cross-verify past reporting.

Experts recommend that investors stay informed and seek professional assistance, if necessary, to navigate these evolving tax regulations effectively. By staying ahead of the game and ensuring compliance with the new rules, crypto investors can mitigate potential risks and uncertainties associated with crypto tax reporting.