A New Crypto Reporting Rule Could Impact Taxes on Your Investment. Here’s What You Need to Know

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Digital asset owners may have extra tax paperwork in the next few years. Read on to find out how new regulations may change your taxes. 

During the height of the pandemic, the popularity of investing in digital assets soared. Many investors used pandemic-era stimulus money to invest in cryptocurrencies like Bitcoin, rapidly driving up its value over a short period.

Investors also spent money on other digital assets during that time, including non-fungible tokens (NFTs), which are digital files that show ownership of things like a work of art, image, song, or other assets.

While the interest in digital assets has tapered off a bit over the past few years, the global crypto market is still worth an estimated $1 trillion right now, according to CoinMarketCap, and the NFT market was worth about $2.9 billion in the second quarter of 2023, according to DaapRadar.

And that’s put the digital asset market on the radar of both the IRS and the U.S. Treasury Department. The U.S. government recently released new proposed tax regulations on digital assets that will likely have a significant impact on both taxpayers and brokerages.

What the proposed crypto regulations say

Currently, cryptocurrency investors and people who have bought and sold other digital assets have to tell the IRS whether they bought, sold, exchanged, or received any digital assets and then self-calculate their gain or loss for the year.

However, the IRS and Treasury Department are proposing a significant ramp-up of digital asset reporting by proposing that online brokerages and other trading platforms also begin reporting sales and exchanges.

Not only do the proposed regulations affect traditional brokers, but the definition of a broker would expand to include centralized and decentralized trading platforms. This means that online crypto exchanges, trading platforms, crypto payment processors, and digital wallets would also have to report on digital assets.

All brokers will do this by submitting a Form 1099-DA, which will be sent to digital asset holders and the IRS, to help taxpayers determine if they owe taxes, according to the Treasury Department. The proposed regulations, if enacted, will require brokers to begin reporting in 2026, which means that all crypto, NFT, and other digital asset sales and exchanges for 2025 will be included on Form 1099-DA.

The Treasury Department is accepting public comments about the changes until the end of October and will issue final regulations after a public hearing in early November.

How the crypto reporting rules could impact your taxes

The U.S. government is making a significant move to regulate the reporting of digital assets sales, purchases, and exchanges so that it can collect taxes on these assets in similar ways to that for stocks and bonds.

The government hopes that if the proposed rules are enacted, it will help boost tax revenue and keep people from evading taxes with digital assets.

“This is part of a broader effort at Treasury to close the tax gap, address the tax evasion risks posed by digital assets, and help ensure that everyone plays by the same set of rules,” the Treasury Department said on its website.

This means that your reporting of cryptocurrency ownership will be more detailed in the next couple of years. And as such, you could end up owing more taxes than before. The good news is if you get a Form 1099-DA, you’ll have a better understanding of how much you owe.

But that doesn’t mean you can avoid reporting digital assets right now. Under current laws, people are required to pay taxes on any gains from selling digital assets. In that sense, the new proposed changes are an extension of your responsibility to report your crypto and digital assets.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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