Streamlined 1099-DA Compliance Made Simple

Crypto investors will now be receiving a Form 1099-DA from their digital asset broker. Reporting will be required by the IRS beginning in January 2026 for tax year 2025 and will encompass transactions that include digital assets such as cryptocurrency and non-fungible tokens (NFTs).

Form 1099-DA is designed to improve tax compliance by ensuring accurate reporting of digital asset transactions. As cryptocurrency, NFTs, and other digital assets grow, many transactions go unreported, contributing to a growing tax gap. 1099-DA helps close this tax gap by capturing missing data and aligning digital asset reporting requirements with traditional asset reporting.

Form 1099-DA provides standardized methodology for reporting cryptocurrency transactions. Requiring digital asset brokers to issue the Form 1099-DA ensures that the IRS can secure more accurate information regarding cryptocurrency transactions. This greatly reduces the potential for fraud and nonpayment of taxes.

Anyone engaging in transactions using virtual assets will be impacted and will need to be issued a Form 1099-DA. Examples of this include entities or individual persons who buy, sell or trade cryptocurrency and businesses who accept cryptocurrency as a form of payment for goods or services.

Prior to January 1099-K forms were issued to those who were paid in cryptocurrency by the payment platform. The gross amount of crypto payments for the tax year were calculated and stated on the 1099-K. Then, individual taxpayers would be responsible for self-reporting this income on their own Form 1040.

The Instructions for Form 1099-DA were released on January 8, 2025, and like other instructions for 10-Series forms, contains complex information detailing how each box must be filled out, including some rules and exceptions. Along with information commonly required for 10-series reporting like federal tax withheld and state-specific information, the 1099-DA requires a complex array of data from cost basis and information about gains and losses, to confirmation of whether a digital asset is categorized as a non-covered security. This level of detail reflects the complex nature of the digital asset marketplace and the required information necessary to provide the IRS with a comprehensive and detailed glimpse into digital asset handling by an individual or entity over the course of a calendar year. To put it briefly, the 1099-DA is likely the most complicated representation of 10-series reporting to-date, but is much simpler than its previous iterations in draft form.

Prior to the release of the current form by the IRS, the form went through multiple draft revisions. The original draft was complicated and required information about the time the digital assets were acquired and disposed of. The reasoning behind the original requirements was that digital assets can change value very quickly and that the timing of the acquisition or disposition mattered significantly. Over time the form has been edited and pared down, due in part to the final regulations surrounding digital asset reporting published during the summer of 2024. While the final version of the form is somewhat simpler and refined than its draft versions, it still represents a complex reporting vehicle that filers must become familiar with quickly to ensure they maintain the proper data points for reporting purposes.

The regulations which were created in conjunction with the development of this form received over 30,000 comments during the comment period, many of which were about the complicated nature of the regulations themselves which would in turn would require a complicated form. The IRS considered many of the comments and integrated some of them into the final regulations which were significantly simplified from the original version. The primary focus of the regulations was to treat digital assets like other traded assets, providing cost basis and sale price information to allow for more clear understanding of the value of the assets for tax purposes.