Form 1099-DA: The Next Generation of Crypto Tax Returns

tax forms

It’s no secret that the cryptocurrency sector is one of the fastest-growing in the world. So isn’t it strange that there is no tax form specifically for reporting annual crypto earnings and losses at present?

Cryptocurrency exchanges and trading platforms have given individual investors their tax information through different crypto tax forms 1099 (1099-MISC, 1099-B, etc.) in the past. However, these forms frequently lack crucial information and aren’t designed for the complexity of cryptography.

The good news is the new form 1099-DA (digital assets) could give investors more direction as the IRS continues to specify how cryptocurrency should be handled. It is anticipated that form 1099-DA will offer a mechanism for taxpayers to report their cryptocurrency more readily.

This is a tell-all post of the known information about the upcoming form 1099-DA. But let’s begin with briefly reviewing the existing form 1099 crypto form.

The current 1099 forms for crypto are IRS information returns used to report a range of business tax-sensitive information, such as the following:

  • Money paid to brokers (1099-B)
  • Payouts to independent contractors (1099-NEC)
  • Further details (1099-DIV, 1099-S, 1099-R, and so forth)
  • Additional payment details (1099-MISC)
  • Information about third-party transactions (1099-K)

 

What are the Shortcomings of the Current 1099 Form for Cryptocurrency?

You might wonder, what is the difficulty with the current form covering such crucial details about the transaction? Let us explain it to you!

Due to the lack of certain KYC (Know Your Customer) components, which aid the IRS in determining who is paying and earning from these transactions, tax experts estimate that the existing practice may not last very long.

Also, the source cost basis of the cryptocurrency buyers is not made clear by the existing 1099 forms, which is crucial to derive Cryprocurrecy capital gain. The formula goes as follows:-

Gross proceeds – Cost basis = Capital gain or loss

Suppose you purchase $5,000 worth of bitcoin from Coinbase and send it to your cold wallet. You later sell BlockFi your Bitcoin for $8000. The issue is that BlockFi wouldn’t be aware of bitcoin’s initial purchase price.

Your 1099 form will indicate the original cost as “unknown” or “missing.” Unless you can establish that you paid $5000 for these bitcoins, $8000 will be counted as a capital gain. As a taxpayer, you could find this irritating and perplexing.

What is Form 1099-DA?

Here comes the solution to the challenges mentioned above – The new IRS tax form 1099-DA! It stands for 1099-Digital Assets. It’s yet to be made available to taxpayers and preparers.

The new 1099-DA tax return is anticipated to be implemented in 2024, at which point taxpayers will be required to submit information regarding their digital assets from the prior year, 2023. In addition, it will become the standard reporting for crypto profits and digital assets.

What is Included in the New IRS Form 1099-DA?

The form 1099-DA is intended to contain important information about the payer and payee, including their legal names, addresses, purchase and sale dates, social security numbers, asset types, cost basis, and gross profit.

And given that the IRS is determined to keep KYC-related data from cryptocurrency exchanges, this will probably be an inadmissible component of the form.

Additionally, the new IRS tax form 1099-DA will likely include information on capital gains, losses, and transactions using cryptocurrencies. This way, taxpayers can compute their earnings and losses from NFTs and cryptocurrencies.

However, as the Form 1099-DA specimen copy is not available to the public, it is difficult to predict what will essentially be disclosed on the new 1099-DA form.

Who Must Submit a Form 1099-DA?

According to the Infrastructure Act, you must send Form 1099-DA to your clients for the prior tax year in the first quarter of 2024 if you own a cryptocurrency trading firm.

When Will the Form 1099-DA Become Accessible?

The form and reporting were originally scheduled to start in 2023. However, the submission and filing deadline might be extended, given that the IRS has not yet issued the instructions. And it is widely reported that IRS may further delay the implementation of the 1099-DA.

What if a 1099-DA is Not Reported to the IRS?

Although the exact guidelines for 1099-DA, in particular, are unknown, you can take the reference of the existing laws of form 1099.

The current regulations state that if the IRS determines that you owe more tax on unreported 1099 income, they will let you know and start charging you penalties. They also charge you interest backward from the day they determined you owed extra tax.

How Can Mesha Help You?

Are you seeking a simple approach to record your bitcoin taxes and track your cost basis?

It’s difficult to predict how IRS Form 1099-DA will differ from other 1099 forms because much information hasn’t been provided about it. The issuance of the Form 1099-DA is not anticipated until 2024.

However, Mesha has the necessary resources and knowledge to help you figure out the newest taxes on cryptocurrency and digital assets.

We can connect to many blockchains and cryptocurrency exchanges, such as Ethereum. We also use accounting and bookkeeping programs like Xero, Wave, and Quickbooks, allowing you to file your cryptocurrency taxes quickly.

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