Crypto investors are facing potential tax headaches with the IRS as cryptocurrency exchanges transition to reporting profits using the new 1099-DA form. This form lacks cost basis information, leading investors to potentially overpay on taxes if they do not provide accurate numbers themselves. The IRS deadline for exchanges to send these forms is February 17.
Investors who fail to supply cost basis information may face significant tax bills. The IRS defaults to a missing cost basis of $0, potentially doubling the tax owed on profits. Exchanges like Coinbase and Robinhood can provide some data, but tracing cost basis across multiple wallets and exchanges can be challenging.
Cryptocurrency investors are advised to research and organize their cost basis data to avoid overpaying on taxes. Hiring experts to reconcile a crypto portfolio can be costly but may be worth it in the long run. It is crucial to stay organized and accurate to prevent potential issues with the IRS after filing taxes.
The 1099-DA form is triggered when digital assets are traded or sold for cash, foreign currency, or used to pay broker transaction costs. Taxpayers must report all income, gains, or losses, even if they do not appear on the form. Crypto moves that do not trigger the form include shifting tokens between wallets.
Crypto exchanges are now standardizing the way they report income to investors and the IRS with the 1099-DA form. This change is expected to generate billions in revenue over a decade. While challenges remain in implementing the form’s requirements, exchanges are working to ensure accurate reporting for investors.
As the IRS continues to navigate cryptocurrencies like bitcoin and ether, the 1099-DA form is a step towards determining taxable income on the blockchain. Investors are urged to stay informed, keep good records, and be prepared to provide cost basis information to avoid overpaying on taxes.
Read more at Yahoo Finance: Crypto investors who don’t fill out this new tax form the right way could overpay on their taxes