There are new upcoming digital asset tax regulations in 2025 that all investors dealing in things like bitcoin or Doge should be aware of.
In December 2024, the US Treasury announced that brokers (specifically decentralized finance or DeFi brokers) will be responsible for reporting on “gross proceeds of the sale of their digital assets” via a 1099 form starting in 2026 for transactions made in 2025. But what does that mean for the typical taxpayer? This is a quick guide on the most up-to-date information for US digital asset regulation and reporting coming into play in the next tax year.
What is a “digital asset”?
According to the Internal Revenue Service (IRS), a digital asset is considered property, not currency. A digital asset is stored electronically and bought, sold, owned, transferred, or traded. The digital asset is taxed once sold, and the transaction creates a gain or loss. Here are a few examples of digital assets:
Convertible virtual currencies
Fully convertible currency is also known as Fiat money. For example, the most tradable currencies in the world are, in order, the U.S. dollar, the Euro, the Japanese Yen, and the British pound. Fiat money can be traded for other countries’ fiat currencies on the foreign exchange (forex) marketplace.
Cryptocurrency
Broadly defined, cryptocurrency is virtual or digital money described as “tokens” or “coins.” For example, Bitcoins, Ethereum, Tether, Binance Coin, etc.
Non-Fungible Tokens (NFTs)
NFTs can be traded and exchanged for money, cryptocurrencies, or other NFTs—it all depends on the value the market and owners have placed on them. Asset examples are pieces of art, digital content, or videos that have been tokenized.
Do I need to pay taxes on digital assets?
Yes: If you have digital asset transactions, you must report them whether they result in a taxable gain or loss.
If you have digital asset transactions, keep records documenting your purchase, receipt, sale, exchange, or any other disposition of the digital assets. The fair market value of all digital assets is measured in USD as income or payment in the ordinary course of a trade or business.
How can taxpayers comply with the new IRS digital asset reporting regulations?
In essence, digital assets like bitcoin are simply another form of assets, which must be reported on. The IRS has thankfully created more guidelines than years past on how to report this income.
Also, the treasury has drafted Form 1099-DA, a separate form for recording digital asset income, but this may be subject to change by the legislature in the next year. This is a form brokers will need to send you in 2026 for the purchases you made in 2025.
A Quick Summary of the IRS Digital Asset Tax Rules
You must answer “yes” or “no” to the relevant digital asset question on your individual or business tax return: “At any time during the tax year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
If you answered “yes,” you must keep records (usually receipts), calculate capital gains/losses, find your basis, and report your income on the correct forms. For example:
- For gifts of digital assets, use Form 709.
- For sold capital assets, use Form 8949.
- For wages you earned in the form of digital assets, use Form 1040 or schedule C (for independent contractors).
- For selling, exchanging, or disposing of digital assets to customers, use Form 1040 Schedule C.
Moving forward, DeFi brokers and companies will need to provide their customers with detailed digital asset reporting information via their 1099s in 2026; however, regardless of the year, you should be consistently and accurately representing your assets to the IRS regardless of the new regulations. If you have further questions on compliance, definitely consider contacting a professional accountant, such as our team at LittleOwl CPA.
