What to Expect From the New IRS Guidelines on Cryptocurrency Tax Reporting

Gordon Law Administrative Attorney and CPA Andrew Gordon joins Wealth! to provide insight into the IRS’s new tax guidelines for cryptocurrency investors.

Gordon explains that new broker regulations require cryptocurrency brokers or exchanges to report to taxpayers, investors, and the IRS their individual cost basis, as well as the selling price and the gains and losses that accompany it.

“I expect a massive increase in scrutiny, a massive increase in criminal investigations based on this information, and further attempts to close this tax gap and collect more money from crypto investors,” Gordon tells Yahoo Finance.

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This post was written by Nicholas Jacobin

Video Transcription

Everyone.

The U.S. Department of the Treasury and the IRS are releasing their final new tax reporting rules for cryptocurrency brokers.

The new rules will soon shift the burden of reporting cryptocurrency activities, trading, and cost bases for tax purposes away from cryptocurrency investors.

Now let’s move on to the broker in more detail: we have Andrew Gordon, partner of the Gordon Law Firm, tax attorney and CPA Andrew.

It’s a pleasure to have you here with us and thank you for being here with us this morning.

Let’s start with a general explanation of these new rules.

What exactly is happening?

Safe.

So, for the last decade or so, since the dawn of cryptocurrency, the burden of reporting all of your assets on your taxes has fallen on investors or taxpayers.

And so what’s happened over time is there’s a huge tax gap, which is the difference between what people actually have to report and pay and what the IRS is collecting, and that’s partly because it’s been a disaster to report taxes on cryptocurrency.

If you are a cryptocurrency investor, you need to get data from different sources, put it together and report your gains or losses.

And that’s a unique feature of cryptocurrencies versus something like the stock market and what this legislation has done.

And now these new broker regulations put in place that cryptocurrency brokers or exchanges are required to report to both taxpayers or investors and the IRS the individual’s cost basis or the price at which they made the purchase, as well as the selling price and the gains and losses that accompany it.

So what kind of timing are we talking about?

When will it come into effect?

So the tax form that will be issued, called Form 1099 DA, 1099 D A.

It’s a new form.

It will be issued for fiscal year 2025.

Then it will be used when you file your 2025 tax return in 2026.

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But while the tax form is for individuals in 2025, if you are involved in the cryptocurrency industry, there are some very important steps you should take before filing because the IRS will start throwing a lot of information at you.

They will have more data than ever on cryptocurrency investors.

But at the same time, there are many people who have not yet disclosed their cryptocurrency investments.

So even though the tax form is going to go into effect in 2025, you should do some things right away, you should do some things.

Now, what do you think the IRS might do in terms of enforcement once it gets this new batch of information about cryptocurrency holdings?

So, as I said, there was this huge tax gap, right?

Billions of dollars, perhaps even more than the IRS should have collected from cryptocurrency investors, but because they didn’t have this information, they couldn’t do it effectively.

So I would expect a massive increase in scrutiny, a massive increase in criminal investigations based on this information, and more attempts to close this tax gap and collect more money from cryptocurrency investors.

What should people do in the meantime, before this form comes into force?

So if you are watching this video and you are a cryptocurrency investor and you have not yet reported your cryptocurrencies or you have not fully reported them.

Now is the time to get your act together, talk to a tax professional and get your paperwork in order, evaluate, file an amended tax return, or even if you don’t, have your cost basis information ready so that when you file returns in future years and when the IRS gets all this information, you can report it completely and consistently, and finally, while we’re at it, what should people know about what brokers are going to be responsible for?

So, brokers will issue the IRS and investors this form 1099 DA, which will be very similar to what investors in the stock market are used to, which is the 1099 B, which will indicate the cost basis and the selling price.

But what is really important to know is that in the early years, especially brokers will not have all the information.

They will not be required to provide cost basis information if transactions occur before 2025.

So there will still be a lot of information missing, but hopefully over time it will be very similar to what we saw with the 1099B forms.

Andrew Gordon, Partner at Gordon Law Firm, Tax Attorney and CPA Andrew.

Great analysis here.

Thank you so much for taking the time to talk to us today.

Thank you.

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