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On August 25, 2023, the U.S. Treasury Department introduced a significant new rule. This rule mandates that cryptocurrency brokers, encompassing exchanges and payment processors, must report user data – including cryptocurrency sales, purchases, and asset exchanges – to the IRS.
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The purpose is to tackle potential tax evasion within the cryptocurrency domain. This rule brings forth a fresh tax reporting form, named Form 1099-DA, which simplifies cryptocurrency and Non-fungible token tax calculations for taxpayers.
The rule broadens the “broker” definition to include both centralized and decentralized digital asset trading platforms, crypto payment processors, and specific online wallets storing digital assets. These brokers will be required to send these new tax forms to both the IRS and digital asset holders, streamlining tax preparation.
These obligations stem from the 2021 Infrastructure Investment and Jobs Act, which aimed to enhance tax reporting standards for digital asset brokers. The legislation also extended reporting necessities for significant cash transactions involving digital assets. The Treasury Department estimates these regulations could yield around $28 billion in tax revenue over a decade.
Proposed Crypto Tax Rules: Effective 2025 for Brokers, Mixed Industry Response
The U.S. Treasury Department plans to roll out new rules for brokers in 2025, impacting the 2026 tax season. This initiative is part of a broader strategy to enhance tax compliance, curb evasion linked to digital assets, and ensure fairness for taxpayers.
The crypto industry’s reaction to the proposal varies. Some see potential benefits in accurate tax law adherence. However, critics argue that the approach might not simplify tax filing, particularly considering the complexities of decentralized finance (DeFi).
In a recent report on August 3, 2023, highlighted Democratic Senators urging swift publication of cryptocurrency tax guidelines. They’re concerned about potential annual losses of up to $50 billion due to crypto tax evasion, posing risks to the government’s financial stability. Urgent calls for stricter regulations are being emphasized.
Presently, crypto users must report digital asset activities on their tax returns, even without gains. Users need to calculate this data, as trading platforms don’t furnish the IRS with such information. Feedback on the proposal is welcome until October 30, with public hearings scheduled for November 7-8.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
