According to CNBC, the IRS is implementing sweeping new crypto reporting requirements that will fundamentally change tax compliance for digital assets. Starting with the 2025 income tax year, crypto brokerages must issue Form 1099-DA reporting gross proceeds from every digital asset sale. In 2026, they’ll be required to add cost basis information, making it impossible to hide gains or losses. Financial advisor Ric Edelman notes this eliminates the “tax cheat” advantage many crypto investors mistakenly believed they had. The changes come as bitcoin has experienced massive volatility, dropping over $40,000 from its recent record highs. Tax experts warn investors need to get their records in order immediately, especially with year-end tax planning opportunities like loss harvesting available right now.
The end of crypto’s wild west tax days
Here’s the thing: crypto taxation has always been the law, but enforcement has been… let’s call it inconsistent. Basically, the IRS treats cryptocurrency as property, just like stocks or real estate. Every sale triggers a capital gain or loss. But until now, brokers weren’t required to send those pesky 1099 forms that make stock trading so transparent to the IRS. That changes completely starting January 1, 2025.
Think about what this means. If you bought Ethereum for $1,500 and paid a $50 fee, your cost basis is $1,550. Sell it for $2,000, and you’ve got a $450 taxable gain. Simple math, right? But here’s where it gets messy for many crypto investors. If you transferred tokens to a broker after holding them elsewhere, the broker only knows the transfer price, not your original purchase cost. You’re still responsible for tracking and proving your actual cost basis.
The recordkeeping nightmare is real
And this is where many crypto investors are going to face serious headaches. Daniel Hauffe from The American Institute of CPAs makes it clear: “It’s a taxpayer’s responsibility to track and substantiate whatever cost basis they’re providing.” If you’ve been trading across multiple platforms, doing DeFi transactions, or just generally being casual about recordkeeping, you’ve got a problem.
Ric Edelman doesn’t mince words: “If you try to do this manually, it is complicated and you’re likely to make errors.” He recommends using specialized crypto tax services like ProfitStance, Taxbit, TokenTax or ZenLedger. Given the complexity, paying for professional help might be cheaper than IRS penalties down the road.
The staking tax dilemma
Now here’s where things get even more confusing. The IRS issued Notice 2024-57 saying they’re still studying how to tax various crypto transactions. Staking rewards are a major gray area. The IRS currently says they should be taxed as income when received, but many advocates argue taxation should only happen when you actually sell or spend those rewards.
Zach Pandl from Grayscale points out that staking rewards are becoming mainstream now that ETF issuers can provide them. “Staking rewards are increasingly common for investors because they’ve now been activated in ETFs,” he notes. So what happens when your boring old ETF starts generating crypto income that may or may not be taxable immediately? Yeah, it’s complicated.
What you need to do right now
Look, with year-end approaching, there are actually some strategic opportunities. Tax-loss harvesting involves selling investments at a loss to offset gains elsewhere. Given bitcoin’s recent drop from its October highs, this could be a smart move for some investors. Stuart Alderoty from the National Cryptocurrency Association advises: “This is the time to be thinking about that and planning for it. You can harvest gains and you can harvest losses as well.”
But the most important step? Get professional help. Edelman warns that “most accountants are not [knowledgeable about crypto] because they haven’t had any training in this area.” You need someone who understands the IRS digital asset guidance and knows which forms to use (Form 8949 for capital assets, Form 1040 for income).
So basically, the crypto tax free ride is over. The IRS is bringing the same scrutiny to digital assets that they’ve long applied to traditional investments. Time to get your records straight—or face the consequences.
