Starting in 2025, US taxpayers who buy, sell, or trade digital assets like Bitcoin will face new third-party reporting requirements. These regulations, introduced by the Internal Revenue Service (IRS), aim to enhance tax compliance and transparency in the rapidly growing cryptocurrency market.

As detailed in a CNN report, the rules will apply to transactions conducted on custodial accounts hosted by centralized crypto trading platforms such as Coinbase and Gemini. These platforms, identified as brokers under the new guidelines, will be responsible for tracking customer transactions and providing the IRS with detailed reports on a new form, the 1099-DA.‍

What the Reporting Involves

The 1099-DA form will capture information about customers' crypto transactions throughout the year and will be sent to both the IRS and the taxpayers by early 2026. Similar to other 1099 forms, such as those for dividend and interest income, the information on the 1099-DA must be included in taxpayers' 2025 income tax returns.

Failure to report crypto transactions accurately could result in penalties, as the IRS will cross-check the submitted information with its records. Notably, brokers will not be required to include cost basis—the price at which a crypto asset is purchased—for tax year 2025. This requirement will take effect in 2026, according to Jessalyn Dean, vice president of tax information at crypto tax software provider Ledgible.‍

Decentralized Platforms and Bitcoin ETFs

For those trading on decentralized platforms like Uniswap or Sushiswap, the timeline for third-party reporting is extended. These platforms, which facilitate peer-to-peer exchanges without holding custody of assets, will begin reporting gross proceeds from transactions in 2027. However, they will not include cost basis information.

Investors in Bitcoin exchange-traded funds (ETFs) will also see reporting requirements starting in 2025. ETF providers will issue either a 1099-B or 1099-DA, which will include details of taxable events within the fund, such as gains or losses incurred during routine asset sales to cover expenses. Tax advisers are recommended for ETF holders to navigate these complexities.‍

No New Taxes, Just Enhanced Compliance

The new reporting rules do not introduce additional taxes on digital asset transactions. Instead, they aim to streamline compliance and ensure taxpayers accurately report and pay their taxes. The U.S. Treasury has emphasized that these measures are designed to reduce errors and simplify the filing process for taxpayers.

Kell Canty, CEO of Ledgible, highlighted the importance of compliance, noting that the rules serve as a reminder to taxpayers of their obligations. "If you haven’t been reporting, you need to report," he said.