IRS Introduces Form 1099-DA for Crypto Transactions in 2025: Impact on CEXs and ETFs

IRS Unveils New Crypto Transaction Reporting for 2025: What You Need to Know
The IRS is set to introduce a new third-party reporting system for cryptocurrency transactions on centralized exchanges (CEXs) in 2025, utilizing Form 1099-DA. This move aims to enhance tax compliance but raises concerns about privacy and the nature of decentralized finance.
- 2025: New reporting system for CEXs like Coinbase and Gemini.
- Form 1099-DA: Designed to report crypto transactions.
- DEXs and non-custodial wallets: Reporting to start in 2027.
- Spot Bitcoin ETFs: Subject to similar reporting requirements.
Centralized Exchanges and Form 1099-DA
Starting in 2025, centralized exchanges like Coinbase and Gemini will be required to report their users’ crypto transactions to the IRS using Form 1099-DA. Custodial transactions, where a third party like a CEX holds your assets, will be the initial focus. This step-by-step plan aims to bring more transparency to the crypto world, but it’s not without its headaches. Say goodbye to your crypto sneaking around incognito; the IRS is rolling out the red carpet for your transactions!
While this could legitimize cryptocurrencies in the eyes of traditional finance, it also poses a significant challenge to the privacy that many crypto enthusiasts cherish. This isn’t just a new form; it’s a whole new ballgame for crypto taxes.
The Future for DEXs and Non-Custodial Wallets
By 2027, the IRS plans to extend its reporting requirements to decentralized exchanges (DEXs) and non-custodial wallets. For those unfamiliar, DEXs are platforms where you trade directly with other users without a middleman, and non-custodial wallets are where you control your own keys. The challenge here is that tracking transactions on these platforms is like trying to catch smoke with your bare hands.
The IRS will only report total transaction amounts for these platforms, reflecting the complexities of decentralized systems. This move could push the boundaries of what’s possible in terms of regulating decentralized finance, but at what cost to the ethos of decentralization? It’s a delicate balancing act between regulatory needs and the freedom that blockchain technology promises.
Spot Bitcoin ETFs Under the Microscope
Spot bitcoin ETFs, which are funds that directly track the price of bitcoin, won’t escape the IRS’s new regime either. Providers of these ETFs will issue either a 1099-B or 1099-DA to shareholders, detailing sales and taxable events within the fund. As experts from Ledgible note,
“There’s a gain or loss on the sale inside the fund, and investors will have to calculate their applicable portion of that.”
This could mean more paperwork and potential headaches for ETF shareholders, but it also signifies the growing mainstream acceptance of bitcoin.
Preparing for the Changes
With cost basis information not being reported until 2026, investors will need to keep meticulous records until then. This delay could lead to confusion and frustration, so start organizing your crypto transactions now. Consider using tools like CryptoTax to help manage your records, and don’t forget to check out resources from the IRS to stay informed.
Balancing Regulation and Privacy
While the IRS’s initiative aims to reduce errors and noncompliance in tax reporting, as experts from Ledgible point out,
“Third-party reporting requirements do not represent a new tax on digital asset investors. Instead, they represent a new tax compliance mechanism to help ensure that you pay what tax you owe.”
This sentiment is supported by the U.S. Treasury, which backs the introduction of the 1099-DA form to aid in tax compliance.
However, it’s essential to consider the potential downsides. Could this move stifle innovation or drive users to less regulated platforms? And what about the privacy concerns? While increased regulation can provide a sense of security and legitimacy, it also poses risks to the very principles of decentralization that many in the crypto community hold dear.
As champions of decentralization and privacy, we must navigate this new landscape carefully. The balance between regulatory compliance and the freedom to transact privately will be a critical theme as we move forward into this new era of cryptocurrency taxation.
Key Takeaways and Questions
- What is the new IRS reporting system for crypto transactions?
The IRS is implementing a third-party reporting system using Form 1099-DA for crypto transactions on centralized exchanges starting in the 2025 tax year.
- When will decentralized exchanges be included in the reporting?
Decentralized exchanges and non-custodial wallets will be included in the reporting starting in 2027, but only the total transaction amount will be reported.
- How will the new system affect spot bitcoin ETF shareholders?
Shareholders of spot bitcoin ETFs will receive either a 1099-B or 1099-DA, reporting on sales and taxable events within the fund, which may affect their tax liabilities.
- What is the purpose of the new reporting requirements?
The purpose is to improve tax compliance among digital asset investors by reducing errors and noncompliance in tax reporting.
- What entities are responsible for the new reporting?
Brokers, including custodial digital asset trading platforms, hosted wallet providers, kiosks, and payment processors, are responsible for reporting transactions to the IRS.
- How can investors prepare for these changes?
Investors should start keeping detailed records of their crypto transactions and consider using tools like CryptoTax to manage their records until cost basis information is reported in 2026.
- What are the potential long-term effects on the crypto market?
The new reporting system could legitimize cryptocurrencies in the mainstream financial system but may also drive users to less regulated platforms and pose challenges to privacy and decentralization.