Crypto Taxes Getting Easier? Understanding IRS Draft Form 1099-DA

Key Takeaways

  • The 1099-DA form is a new IRS document specifically designed for reporting digital asset transactions.
  • The IRS requires brokers (including crypto exchanges, payment processors, and some wallet providers) to use this form to report digital asset sales or exchanges to investors.
  • The IRS website has a draft version of the 1099-DA available. It’s important to remember that this is a draft, and the final form might be different.

If you are someone who loves Bitcoin, crypto, NFTs, and anything in the Web3 space, you might want to stick around and read this article. Because yet again, the Internal Revenue Service (IRS) has some more proposed changes to the 1099 in regard to the whole broker and dealer dilemma.

We will explain these proposed changes, what you need to do, and how to navigate them.

What Is The 1099-DA?

1099 forms have been around for a long time. Think of them as a W-2 sent to the IRS and the recipient to inform them of exchanges of assets, receipts of payments, etcetera.

However, the 1099-DA is a new version of the 1099 form, a draft form that the IRS released in August 2023. This form will be adapted to work with digital asset trading.

We have been using Form 8949 for a while. However, this new 1099 version provides a lot more detail. Let’s break it down.

Who Files 1099-DA?

Any entity considered a broker must file this new form. These include exchanges, wallet providers, payment processors, etcetera.

Who Is Going To File A 1099-DA On You?

Acquisitions are not included if you purchase any kind of digital property and are not involved in the 1099-DA system.

If you have received a form 1099-DA, it means that you have generally sold, exchanged, or otherwise disposed of a financial interest in a digital asset, and you should check the “Yes” box next to the question on page one of Form 1040.

Form 1099-DA Draft

Here’s the actual form of the 1099-DA. Remember that this is a draft, and we will go through each section.

Section one is where it starts getting challenging. One of the first things you will notice is that they want a code for the digital asset (1a and 1b). You will also notice that they are asking for the number of units (1c), the date and time acquired (1d), the date and time sold or disposed (1e), proceeds (1f), and cost or other basis (1g).

This implies that this form will have to be generated every time you do a trade, which makes it very inconvenient for traders. Additionally, these brokers are sending this data in an electronic format.

Sections 11a and 11b ask for a sale transaction ID and a digital asset address, which concerns certified public accountants. This is going to get extremely complex as they do not see these as incredibly useful information as opposed to Form 8949, which gives you the opportunity to provide summary information.

What This Means For Traders And Brokers

The big problem here is going to be the reporting basis. The basis is basically what you are going to report to the IRS as the cost of the digital property that you are disposing of. This gets very complex depending on the accounting method that you are using, what year we are talking about, and how you are valuing the digital asset in the beginning.

So, it is going to be nearly impossible for brokers to report on it as it involves the trader in determining the accounting method, timing, coin valuation, and other factors that are all subject to reporting and accounting methodologies.

Final Thoughts

The big takeaway from this is that the IRS is attempting to gather information but is not really sure what information it can legally or safely access. The form is currently being evaluated and is far from final at this point.

To know more about the proposed changes, make sure to hire somebody in your local community who understands how all of these work.


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