With an estimated federal tax revenue gap of $688 billion, studies indicate that $50 billion stems from unreported digital asset transactions. The IRS has intensified enforcement, prosecuting hundreds of crypto tax evasion cases and charging taxpayers for unreported gains. This bipartisan push targets stricter virtual currency compliance.
New IRS and Congressional rules now mandate reporting for digital asset sales, exchanges, transfers, and related income. These changes aim to reduce the tax gap and enhance compliance among high earners.
What Are Digital Assets?
A digital asset is any digitally recorded value on a cryptographically secured distributed ledger (e.g., blockchain) that isn’t cash. Examples include:
- Cryptocurrencies (e.g., Bitcoin)
- Stablecoins (e.g., USDT)
- Non-fungible tokens (NFTs)
Federal Tax Treatment of Digital Assets
Digital assets are classified as property under U.S. tax law. Standard property transaction principles apply, including:
- Capital gains/losses for disposals
- Income reporting for rewards (e.g., staking) or payments
Reporting Requirements for Digital Asset Transactions
1. Taxpayer Obligations
Income from digital asset transactions must be reported on:
- Form 1040 (Individual Tax Return)
- Form 1065 (Partnerships)
- Form 1120 (Corporations)
Taxpayers must disclose if they:
✅ Received digital assets (payment, rewards, mining)
✅ Sold/exchanged/disposed of digital assets
Examples:
- Capital gains: Report on Form 8949 + Schedule D (Form 1040).
- Business income: Report on Schedule C (Form 1040).
2. Broker Reporting Rules
Under the Infrastructure Investment and Jobs Act (2021), brokers must file Form 1099-DA for customer transactions (effective Jan. 1, 2025).
Brokers include:
- Crypto trading platforms
- Payment processors
- Hosted wallet providers
Key Dates:
- 2025: Gross proceeds reporting.
- 2026: Basis reporting (for assets held post-Jan. 1, 2026).
👉 Explore how brokers adapt to new IRS crypto rules
Federal vs. International Taxation
The Crypto-Asset Reporting Framework (CARF) by the OECD standardizes global crypto tax reporting. The IRS will:
- Share U.S. taxpayer data with CARF-compliant countries.
- Receive foreign transaction data for U.S. persons.
State vs. Federal Crypto Taxation
Sales tax varies by state:
- Taxed as cash: California, Kentucky.
- No tax: Arkansas, Washington.
👉 Compare state-level crypto tax policies
FAQ
Q1: Do I pay taxes on crypto gifts?
A: Givers don’t owe tax; recipients may owe capital gains upon disposal.
Q2: How is mining taxed?
A: Mined crypto is taxable as income at fair market value.
Q3: What if I lost crypto in a scam?
A: Report as a capital loss (subject to IRS scrutiny).
Q4: Are DeFi transactions taxable?
A: Yes—each swap, yield, or liquidation is a taxable event.
Key Takeaways
- Report all crypto income—even small transactions.
- Brokers must comply with Form 1099-DA by 2025.
- International rules (CARF) will shape future compliance.
Stay informed with expert insights and evolving regulations.