Digital Transactions Spotlighted: How New US Regulations Include Cryptocurrency in Tax Reporting

Bitcoins and U.S. DollarsPhoto by David McBee on Pexels.com

WASHINGTON, D.C. — There’s a new wave coming, and it’s digital. The U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently released final regulations stipulating that brokers who handle cryptocurrencies and other digital assets are now required to report sales and trades. Naturally, one might ask – why is this happening, and how might it touch on the average consumer’s life? Let’s dive into the topic.

Firstly, this is rooted in an age-old principle of taxation: all income is taxable. The digital realm isn’t exempt. The explosion of cryptocurrency and digital assets has made it necessary for the IRS to introduce regulations that will ensure these transactions are reported correctly for tax purposes.

Reflecting the voice of the people, these regulations have been developed based on the feedback from over 44,000 public comments received on the initial proposal. The new mandate is set to kick off in 2025 and will use the forthcoming Form 1099-DA for reporting these transactions.

The purpose behind this, according to IRS Commissioner Danny Werfel, is to bridge the digital tax gap. “These regulations will improve detection of noncompliance in the high-risk space of digital assets,” he stated, explaining how third-party reporting tends to enhance compliance. The aim is to ensure that the lucrative space of digital assets doesn’t become a haven for hiding taxable income.

But it’s not all about cracking the whip. Werfel assures that these regulations will also help taxpayers by reducing burden and streamlining the reporting of digital asset activity.

The IRS’s efforts are a critical part of maintaining the integrity and robustness of our tax system. As the digital landscape evolves, so does the complexity. To keep up, the IRS requires dependable funding. These regulations aim to offset the investment in resources, saving more in the long run by catching potential non-compliance.

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So, who are the brokers this new regulation targets? The focus is on custodial brokers, including those who run digital asset trading platforms, certain digital asset wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs). For now, brokers specializing in non-custodial or decentralized trades are not included.

The IRS has left room for transitional and penalty relief to support the implementation of these new reporting requirements and to cater to the complexities of the digital asset space.

The regulations are broad, extending to real estate professionals who are now required to report the fair worth of digital assets in transactions from 2026.

It’s worth noting that the regulations have taken into account the nuances of the digital space. Optional aggregate reporting will be allowed for certain sales of stablecoins and non-fungible tokens (NFTs) that exceed a defined minimum threshold. Transaction-based reporting will be required only if the customer’s sales surpass a similar threshold.

In summary, times are changing, and the taxman is evolving with them. These regulations are the IRS’s attempt to keep pace with the fast-spreading digital frontier while ensuring fairness, compliance, and protection for all taxpayers as they navigate the world of digital currency.

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