The term “crypto currency” might bring up mixed feelings for you.
Optimism? Confusion? Skepticism? Wherever you fall on the spectrum, I want to give you a heads-up – our new president is loudly pro-crypto, and he’s got some ambitious plans for digital currency.
Trump’s big crypto plans are mainly to hold onto all bitcoin assets the government currently owns (creating a massive digital stockpile), and to confine bitcoin mining exclusively to the U.S. In simpler terms – Trump is after crypto domination.
The reality is, America is set on a crypto trajectory. And I want you to feel prepared for that by keeping you updated on what you need to know along the way (starting with what’s coming up in 2025).
In the past, the IRS has had its fingerprints all over the crypto transaction scene (for the last ten years anyway), making sure no one gets away with not reporting crypto income on their taxes.
Even still, research shows that most crypto investors (Paducah included) don’t report their digital assets transactions on their taxes. Why? Because crypto reporting is an overly complicated and painstaking process.
I’m sure you’ve felt this, if you’re involved with digital assets at all.
The IRS is cracking down especially hard on crypto reporting in 2025, with the new Form 1099-DA. This is their attempt at simplifying the process and obtaining more reliable information.
But, it’s going to make your odds of getting audited (or even being criminally investigated) much greater if you’ve slacked off on it in the past.
The crypto reporting scene might be ugly in 2025 – which is why you need to do everything you can to check that your crypto 1099 reporting is in order BEFORE the new form makes you more susceptible to penalties.
Crypto Form 1099-DA to Make Filing Smoother for Paducah Investors
“It’s fine to celebrate success, but it is more important to heed the lessons of failure.” –Bill Gates
If you’re involved in the crypto sphere of things at all, you’re probably familiar with the unpleasant experience of crypto tax reporting with Form 1099-K.
This crypto 1099 form doesn’t stand up in a lot of ways. It only allows reporting gross amounts, doesn’t allow specifying different types of transactions, and can look different depending on which platform is issuing it. All of this means lots of confusion – leading to misreporting, which leads to tax return errors and audits.
The IRS’s attempt to be helpful in this crypto dilemma is the new Form 1099-DA, set to go into effect on January 1, 2025. This new form will change things for anyone involved in digital asset transactions – individual investors, businesses that take crypto payments, and even you crypto miners and stakers.
What it is
Basically: Form 1099-DA is tax reporting for crypto traders and investors made simple. It’s a new form for reporting crypto and NFT transactions that will help centralize digital asset reporting.
The overarching goal here? Clear, consistent records of crypto activity (and ideally, fewer tax evasion issues for Uncle Sam to sort through).
Some of the form’s most attractive features will be 1) detailed reporting for digital assets, 2) third-party verification for digital assets brokers, custodians, and exchanges, and 3) standardized reporting that will help with tax law compliance.
How it benefits you
With this crypto 1099 form, you’ll be able to shift from meticulous gathering and calculating to focusing on simply reviewing and reporting. In more specific terms, the new form means:
1. You’ll get a detailed breakdown of every crypto transaction you’re involved in, with the date, type (buy, sell, exchange), and amount (which means: less manual record-keeping for you to keep up with).
2. Cost basis and fair market values will be calculated for you. You won’t have to go through the hoops of tracking down the original purchase price of the asset and calculating its value over time.
3. The form will only include taxable digital assets events (like sales, trades, or crypto payments), helping you sort out the taxable from the non-taxable.
4. You won’t have to keep so many personal records, because detailed transaction data will be provided to the IRS straight from the brokers.
What to do now
Hopefully, you’re already keeping detailed records of your crypto transactions, but this is especially critical with the Form 1099-DA transition coming up. Until then, you need to be diligent about documenting all transactions, including:
- Crypto-to-crypto trades. Be sure to record the fair market value of both assets at the time of the exchange.
- Crypto-to-fiat sales. Selling cryptocurrency for traditional currency (like USD) counts as a taxable event. Record the sale price, original cost basis, and any fees involved.
- Purchases with crypto. Make sure to get down the assets fair market value, your initial cost basis, and any fees.
- Income from mining or staking. Put down the date and time, the crypto type, the amount, and the fair market value.
- Receiving crypto as payment. You’ll need to document the crypto’s value at the time it was received and record it as income.
- Airdrops and hard forks. Record the asset’s market value when you take control of it to ensure proper reporting.
- Gifts and donations of crypto. If you transfer crypto as a gift, it’s generally not taxable for the giver but may require careful documentation for valuation purposes.
You’ll also want to review all your crypto transactions from previous years, to make sure all the details are accurate. This new shift means more specific information in the IRS’s hands, which (as history has proven), results in more audits.
So, to steer clear of a potential audit: Go back and make sure you’ve reported your crypto taxes correctly in the past, starting with the first year you got into crypto. We can definitely offer advice on this.
If you go into 2025 unaware and unprepared, you’ll probably be adding “work through IRS audit” to your list of goals for the new year. And as your Paducah tax adviser, I caution against this.
This shift might feel intimidating to you. But the reality is, crypto reporting won’t change all that much. Crypto income has always been taxable and required reporting (so, if you haven’t been keeping up with your crypto reporting, this would be a REALLY good time to talk).
Form 1099-DA will actually remove a lot of the guesswork for you in crypto reporting and will help keep you far away from the risk of audits in the future. It might just take a little getting used to – which my team and I are here to help with. Just grab a time on my calendar to air out your cryptocurrency concerns:
Wishing you 2025 crypto success,
Dean Owen
