Form 1099-DA - What You Need to Know
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Form 1099-DA (Digital Assets) is a new 1099 reporting form that the IRS is expected to release in 2023. This form will be used to report on transactions involving cryptocurrencies, NFTs, and other similar classes of digital assets.
This Form will represent a major change in how the IRS views and taxes cryptocurrencies. Anyone who transacts or holds large amounts of digital assets as part of their portfolio will need to be aware of changes in regulations tied to Form 1099-DA as part of their tax and wealth preservation strategies.
Why a new 1099-DA Form?
The IRS uses 1099 forms (1099-B, 1099-K, 1099-MISC, etc.) to report many types of income other than what you earn as a salary from a business.
Existing forms like the 1099-B do not properly capture the complexity of valuing digital asset transactions. In particular, challenges with KYC (Know Your Customer) make it difficult to fully follow the transaction history and establish a cost basis for transactions.
The 1099-DA is expected to help add some clarity to the cost basis.
What’s changed with IRS cryptocurrency reporting?
The Infrastructure Investment and Jobs Act (H.R. 3684) passed by the Biden administration in 2021 amended the existing section of the Internal Revenue Code, section 6045, to redefine a broker. Now a broker is “any person who (for a consideration) regularly acts as a middleman with respect to property or services, as well as any person who (for a consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
Effectively, this now requires cryptocurrency exchanges and brokers to report annually on transactions made by their clients. Clients with cryptocurrency assets can expect that the IRS will receive forms from the exchanges documenting their transactions.
As such, clients should be ready to include information on all digital assets in their tax filings.
When will I need to use Form 1099-DA?
Form 1099-DA is expected to be used for Cryptocurrency transactions made in 2023 for filing in 2024. However, due to the complexity of implementing new reporting requirements for digital assets, there may be delays.
For 2022 transactions, we expect major exchanges to report cryptocurrency transactions on other forms, likely a 1099-B or 1099-K.
Wealth preservation and taxation laws involving cryptocurrencies are complex and rapidly changing. CaoLaw attorneys are here to help you navigate this rapidly evolving regulatory environment.
