Following the launch of the updated draft of the 1099-DA crypto tax form by the US Internal Revenue Service (IRS), crypto traders and investors must report all transaction activities involving digital assets. The updated legislation, set to go into force in 2026, streamlines tax reporting and addresses the privacy concerns raised in the previous draft.
Overview of the 1099-DA Crypto Tax Form
The 1099-DA form will be crucial for cryptocurrency investors dealing with brokers, especially centralized exchanges like Coinbase and Kraken. This form will be the main tool for reporting taxable events connected to the exchange and sale of digital assets.
The IRS has realized that the reporting procedure must be simplified as the cryptocurrency market develops. As a result, the IRS recently released an updated draft version of the 1099-DA form.
These adjustments aim to guarantee taxpayer compliance with tax duties about digital assets. It also addresses privacy issues and lessens the administrative load on them. The revised form is a component of the larger regulatory structure the IRS creates to scrutinize crypto-related transactions.
The Major Modifications
One of the most important modifications to the recent version of the 1099-DA form was the removal of the requirement that investors submit their wallet addresses and transaction details. The original version drew harsh criticism from the crypto community because it demanded extensive information that would potentially reveal sensitive data.
Another significant change is the removal of the requirement to include transaction times. In addition, the amount of sensitive information that needs to be provided is smaller, requiring only the dates of transactions.
This modification satisfies the IRS’s requirement for accurate tax reporting while streamlining the reporting process for taxpayers and making it less invasive. Furthermore, the revised draft has eliminated a section requiring filers to identify the broker through which the transaction occurred.
The Revised IRS Guidelines for Crypto Tax Reporting
A few months ago, regulations about the reporting requirements for cryptocurrency brokers were finalized. However, the tax body stated that the existing standards do not address decentralized and non-custodial brokers; thus, it will publish additional regulations before the end of the year.
The IRS aims to simplify tax reporting on digital assets, and one step toward that goal is the introduction of the 1099-DA form. Furthermore, the new form is intended to assist taxpayers in navigating the complexity of digital assets tax reporting.
Beginning with the 2025 tax year, the IRS will provide a simplified way to report digital asset gains and losses to help taxpayers fulfil their tax duties. Accordingly, the IRS has established a 30-day comment period for the public to offer input on the proposed 1099-DA to ensure it satisfies the needs of taxpayers and other stakeholders.
Global Context of Crypto Tax
The IRS’s initiatives to control and tax digital assets are a part of a larger worldwide trend as nations increasingly realize how important it is to tax Bitcoin holdings. For example, Brazil has proposed legislation that will take effect on January 1, 2024, taxing income from cryptocurrencies kept abroad by Brazilian citizens by up to 15%.
Like some other countries, India has imposed stringent tax laws on cryptocurrency transactions, such as a 1% Tax Deducted at Source (TDS) on all transactions and a 30% tax on profits. These actions are part of the nation’s larger efforts to perform oversight functions over the quickly expanding digital asset market.
Moreover, the UK has urged digital asset holders to reveal unpaid taxes to avoid trouble. In Europe, the regulatory landscape on crypto taxation is also evolving.
Notably, Tether CEO Paolo Ardoino has raised concerns over the stringent requirements of the European Union’s new markets in crypto-assets (MiCA) for managing stablecoins within this region. One of the key aspects of MiCA is the requirement that 60% of stablecoin reserves be held in EU bank accounts.
Ardoino argued that such a requirement poses systemic risks to the banking sector. This is especially troubling in light of recent bank catastrophes, such as the failure of Silicon Valley Bank in 2023. He also brought up the USDC de-pegging event with USD to prove that the requisite procedures for stablecoin reserves are not as secure as planned.
