Things to Know About New IRS Crypto Reporting Rules!

Cryptocurrency and taxes - enough to make your head spin. 

However, with the IRS stepping up its game in tracking crypto transactions, you must know what these changes mean for your crypto future. More important now than ever!! 

Let’s explore the new IRS crypto reporting rules. 

The IRS Involvement and Cryptocurrency Evolution!

Hard to believe, but Bitcoin is nearly 15 years old. The world of cryptocurrency has exploded since then. Countless coins are popping up, gaining attention, and sometimes disappearing just as fast.

Today, many exchanges, businesses, and individuals use cryptocurrencies for various transactions. Still, crypto is different for the IRS than regular currency.

Key Point: The IRS perceives all cryptocurrency as property, not currency. This implies that almost every transaction in crypto bears some consequence on taxes. Whether purchasing a cup of coffee or paying for services, your taxation may be affected in either gains or losses.

Crypto Payments: Tax Implications

For instance, if you are paying a freelancer or an independent contractor in cryptocurrency, you must issue an IRS Form 1099 if your total payments are more than $600 in a given year. 

In the case of this payment, the value would have to be measured using the market value of the crypto equivalent in US dollars at the time of such related payment by the IRS.

Also related to wages are the tax implications associated with the payment of staff in cryptocurrency. This includes withholding, which becomes especially complex with digital assets.

Reminder: Since day one, the IRS has treated cryptocurrency as property. Therefore, a taxpayer's record in purchasing and selling crypto should be maintained – something which is very tedious, more so with the fluctuating nature of crypto.

Upcoming Changes: What to Look Forward to?

In 2026, cryptocurrency will be reported to the IRS – and taxpayers. In essence, how brokerages already report your stock trades. 

The reports don't reflect your actual gains; instead, they display the total dollar amount of your transactions.

Another significant change is basis reporting effective in 2027 for cryptos acquired in 2023 and after. If you can't prove the basis of your crypto—how much you paid for it—then the IRS might consider it zero. 

You could wind up overpaying in taxes. It can be challenging to value crypto in peer-to-peer transactions, so record-keeping is very important.

Let’s Prepare for the Future!!!

The IRS is actively soliciting comments regarding these new rules, and with clarity, it's not hard to tell that the crypto tax-reporting landscape is shifting. 

Already, cryptocurrency exchanges are prepping for compliance. People and businesses must be prepared to take on much more responsibility with taxation.

Final Notes by Crypto Accountants!

The Internal Revenue Service is turning up the heat on cryptocurrency taxation. To sail through this complex landscape, you must understand these new regulations at the core.

Need crypto tax-related assistance? Reach out to us at Crypto Accountants for expert guidance!!!