The IRS is taking steps to bring more clarity and compliance to digital asset reporting by releasing the draft Form 1099-DA. Set to be used by brokers to report certain sale and exchange transactions starting in 2025, this form aims to simplify tax reporting for digital assets and enhance transparency in an often opaque market.
But what does this mean for investors, brokers, and anyone holding digital assets like cryptocurrencies or non-fungible tokens (NFTs)?
What is Form 1099-DA?
Form 1099-DA, officially known as Digital Asset Proceeds from Broker Transactions, is a new tax form that brokers will use to report digital asset transactions to the IRS. Much like traditional 1099 forms, which are used to report income from various sources such as employment, dividends, or real estate transactions, Form 1099-DA is designed specifically to capture the sale and exchange of digital assets.
This move by the IRS is part of an ongoing effort to address the complexities and potential loopholes in tax reporting regarding cryptocurrencies, NFTs, and other digital assets. The IRS has recognized that digital assets represent a significant and rapidly growing part of the economy, and with that growth comes the need for clearer tax guidance and reporting structures.
Why Form 1099-DA matters
With the rise of digital assets, reporting taxable income from cryptocurrency sales, swaps, or NFT transactions has become increasingly complex. Many individuals are unsure of how to report their earnings or losses accurately, which can lead to either underreporting or overpaying on taxes.
According to IRS Commissioner Danny Werfel: “This new form will provide more clarity for taxpayers and give them another tool to help them accurately report their digital assets transactions.” Indeed, the IRS has found that third-party reporting greatly increases compliance with tax laws, and Form 1099-DA is expected to improve reporting rates in the high-income digital asset market.
Key changes in the draft form
The latest draft of Form 1099-DA has introduced several important changes that will impact the way that digital asset transactions are reported:
Simplified reporting
In response to feedback from stakeholders, the IRS has removed several controversial requirements from earlier drafts of the form, including the need to report digital asset wallet addresses and transaction IDs. The IRS stated that these changes were intended to help simplify the form and reduce the burden on brokers and taxpayers alike.
Elimination of detailed transaction data
The form no longer requires detailed, transaction-level data, such as the exact time a transaction took place or whether it was recorded on the blockchain. Many brokers have expressed significant relief at this change for brokers because they lack the infrastructure to collect such detailed information. Taxpayers will also find it easier to verify their transactions without having to sift through potentially confusing blockchain data.
Transitional relief
The IRS has provided transitional relief as outlined in Notice 2024-56 and 2024-57, giving brokers additional time to comply with the new reporting requirements.
No broker type designation
Another key change is the removal of the “broker type” box, simplifying the form further. However, removing the broker type box leaves some ambiguity about how decentralized finance (DeFi) platforms, which don’t function like traditional centralized exchanges, will be treated. The IRS has delayed the reporting requirements for DeFi platforms but made it clear that they are not exempt from reporting altogether.
A closer look at the impact on digital asset brokers
For brokers, the new form means additional reporting requirements, but it also brings reprieve in key areas. One of the biggest concerns the IRS heard in earlier drafts was the requirement to submit digital asset wallet addresses and transaction IDs—information that many brokers considered too intrusive. By dropping these requirements, the IRS has simplified the completion process.
Another notable change is that the form now only requires brokers to report transaction proceeds in cash. If proceeds partially include digital assets, those don’t need to be reported on Form 1099-DA, simplifying the filing process for brokers who handle a mix of digital and fiat currencies.
Despite the IRS’ efforts, challenges remain. For example, the IRS has yet to define what constitutes a “digital asset broker,” particularly when it comes to DeFi platforms. These platforms typically don’t collect the personal data needed for tax reporting, making it difficult for them to comply with Form 1099-DA’s requirements. The IRS is still working on creating guidance for DeFi reporting, but for now, brokers will need to stay tuned for further updates.
How will Form 1099-DA affect you?
If you invest in or trade digital assets, Form 1099-DA will likely impact the way you report your transactions to the IRS. Starting in early 2026, brokers will send this form to both you and the IRS, detailing your transactions for the 2025 tax year. Having the information in a standardized format will make it easier for you to accurately report your gains and losses from digital asset transactions.
For those who trade on decentralized platforms or engage in complex transactions involving multiple cryptocurrencies or NFTs, staying compliant with tax laws could still present challenges. However, the new form is a step toward making digital asset tax reporting more manageable.
Closing thoughts and next steps
While the draft of Form 1099-DA simplifies some aspects of reporting digital assets, it’s clear that we’re at the beginning of a long process. Digital assets continue to evolve, and so too must the IRS’s approach to tax reporting.
As we move closer to 2025, we encourage you to stay updated on any additional changes to Form 1099-DA and ensure that your digital asset transactions are reported accurately. If you’re unsure of how these changes will affect you or your business, it’s best to seek professional guidance.
At Financial Solution Advisors, we specialize in navigating complex tax issues, including digital asset reporting. Contact us today to ensure your tax filings are accurate and compliant with the latest IRS regulations.