IRS Form 1099-DA and the Future of Crypto Reporting

The IRS’ introduction of the new digital asset Form 1099-DA, slated for implementation in 2025, is a critical update that both advisors and their clients must be aware of.

This change is particularly relevant to any client who has been affirmatively responding to the digital asset question on their federal tax returns. Historically, the IRS has simply inquired whether individuals have engaged in any transactions involving digital assets within the taxable year.

However, with the launch of Form 1099-DA, the scope of information required from taxpayers will substantially expand.

For a deeper dive, download “Cryptoasset Clarity: Why Your Advisors Need to Know All About Their Clients’ Crypto Portfolios.”

For wealth technology platforms and financial advisors, the advent of Form 1099-DA is not just a regulatory update—it’s an opportunity to streamline and enhance their services for their clients. Advisors tracking this change will recognize the dual challenge and opportunity it presents to maintain compliance and optimize their advisory services.

Starting in 2025, taxpayers will be required to furnish detailed information, including but not limited to:

• Wallet addresses,
• Taxpayer Identification Numbers of all parties involved.
• Fates of acquisition and disposal of the digital assets.
• Cost basis of these assets.

A notable addition to the form is the inquiry into “the amount of nondeductible loss in a wash sale transaction involving digital assets that are also stock or securities for tax purposes.”

It’s important to note, as of the current guidelines, cryptoassets are not subject to the wash sale rules applicable to traditional securities, though this reflects the IRS’ move toward tightening regulations around digital asset reporting.

Advisors and their clients who have traditionally relied on exchanges and brokers for tax documentation should know that the responsibility for accurate and complete tax reporting—especially concerning transactions from decentralized exchanges—will increasingly fall on their shoulders.

Advisors and clients should closely monitor these developments and prepare accordingly. By staying informed and proactive, advisors can guide their clients through these regulatory changes, ensuring compliance while building loyalty with their clients.

Given the intricacies of these new requirements, advisors might be pondering the implications for tax planning and compliance. Herein lies the invaluable role of ByAllAccounts.

ByAllAccounts’ integration with Turnqey Labs offers a solution designed to alleviate the complexities of cryptoasset aggregation and reporting. This fusion of technologies enables advisors to access a holistic view of their clients’ crypto holdings, streamlined within their existing financial planning tools.

With visibility into their clients’ crypto transactions, regardless of where they were executed, advisors can help their clients ensure they are accurately reported.

As the financial landscape continues to evolve at a rapid pace, wealth technology platforms need to provide advisors with technology solutions to stay ahead of the curve. The introduction of Form 1099-DA is just one example of how quickly regulations and reporting requirements can change in the digital asset space.

Form 1099-DA represents a significant step toward the full integration of digital assets into the taxable landscape. For financial advisors, this means staying informed about these changes and leveraging technology solutions like ByAllAccounts to ensure their clients stay in compliance.

As clients also navigate this new terrain, they need to understand their increased responsibility in self-reporting accurate and detailed information related to crypto transactions.

For more information, please download our white paper, “Cryptoasset Clarity: Why Your Advisors Need to Know All About Their Clients’ Crypto Portfolios.”