Biden Administration Is Changing Crypto Tax Reporting

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The Biden administration has recently announced new tax reporting rules for cryptocurrencies. The aim of the new rules is to ensure that taxpayers accurately report their crypto – related activities. This new law will also ensure that they also pay their taxes as and when due. The proposed laws are intended to provide clarity and guidance to crypto users. It will also help the government track and collect taxes on digital assets. All reports of digital assets under the new law will be made to the Internal Revenue Service (IRS) which is also under the U.S. Treasury Department.

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There has been a push by regulators in the U.S. and Congress to track crypto users who may not be paying their taxes. This new law is part of a broader push for this agenda. The Treasury Department said “This is part of a broader effort at Treasury to close the tax gap, address the tax evasion risks posed by digital assets, and help ensure that everyone plays by the same set of rules,”

According to the Treasury Department, the new law will take effect for brokers from 2025 towards the 2026 tax filing season.

Form 1099-DA: A New Tax Reporting Form

One of the key aspects of the new rules is the use of a tax reporting form called Form 1099-DA. This form is designed to assist taxpayers in checking whether they owe taxes on their crypto deals. It will also help crypto users comply with their tax obligations. By giving detailed info about their digital asset activities, taxpayers can ensure accurate reporting and avoid potential penalties.

The Treasury Department said the “new tax reporting form called Form 1099-DA is meant to help taxpayers determine if they owe taxes, and would help crypto users avoid having to make complicated calculations to determine their gains”

Also, the new form will allow digital asset brokers to use the same reporting style as other financial brokers. According to Reuters, the new law recognizes a broker to include “both centralized and decentralized digital asset trading platforms, crypto payment processors and certain online wallets where users store digital assets”. This means that the new law will cover cryptos like Bitcoin and others.

However, there will still be a need for brokers to send the forms to both the IRS and digital asset holders. This will help with their tax preparation.

Recall that the 2021 $1 trillion Infrastructure Investment and Jobs Act targets digital asset brokers in parts. The Act makes provision for higher tax reporting by digital asset brokers. The Act also forced the IRS to define which firms can be classified as crypto brokers. Also, it asked the IRS to make forms and laws for digital assets reporting. This new law is in response to the broader Infrastructure Investment and Jobs Act.

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Reporting Requirements for Crypto Users

Under the current IRS laws, crypto users are already required to report various digital asset activities on their tax returns. This includes reporting income from trading cryptos, receiving crypto as payment for goods or services, and mining or staking cryptos. The new rules aim to further enhance reporting requirements and ensure that all crypto deals have proper accounts.

Also, the new law needs brokers to report some cash deals that are over $10,000 to digital assets. The government estimates that the new law can bring in no less than $28 billion in about 10 years.

The new law also imposes more reporting tasks on crypto brokers. Brokers will need to report info on digital asset sales and exchanges conducted by their clients. This will enable the IRS to have a clearer picture of crypto deals and ensure that taxpayers are accurately reporting their gains and losses.

Industry Response and Concerns

The launch of these new tax reporting rules has drawn mixed reactions from crypto experts. Some groups have expressed concerns about the increased reporting laws and potential privacy issues. Others see it as a good step towards regulating the crypto market and ensuring tax compliance.

Blockchain Association CEO Kristin Smith said the laws “could help provide everyday crypto users with the necessary information to accurately comply with tax laws”. However, he said this can only be the case if the laws are used correctly.

However, Miller Whitehouse-Levine, CEO of the DeFi Education Fund, said the new law will not make tax filing easier and will not also improve tax compliance. He said

“Today’s proposal from the IRS is confusing, self-refuting, and misguided. It attempts to apply regulatory frameworks predicated on the existence of intermediaries where they don’t exist,”

The new tax reporting rules are part of the Biden administration’s efforts to implement revenue-raising measures outlined in the 2021 infrastructure law. These measures aim to generate more funds for infrastructure projects and other government initiatives.

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Impact on Crypto Investors

For crypto investors, the new tax reporting rules mean that they will now need to keep records of their crypto deals. It is crucial to keep good records of deals, sales, and exchanges of cryptos, as well as any income received in crypto form. This will help ensure accurate reporting and reduce the risk of penalties or audits.

Final Words

The Biden administration’s unveiling of new crypto tax reporting rules is a big step in the laws of the crypto market. The use of Form 1099-DA will ensure that there is better reporting by brokers and an increase in tax returns. It will also ensure that brokers give a true report of their crypto activities. As the crypto market continues to evolve, it is essential for investors to stay informed about their taxes.

Disclaimer: We may be compensated by some of the companies whose products we talk about, but our articles and reviews are always our honest opinions. For more details, you can check out our editorial guidelines and learn about how we use affiliate links.

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