Cryptocurrency may be decentralized, but the IRS is anything but hands-off when it comes to taxing it. Each year, crypto tax compliance becomes more formalized, enforceable, and complicated.
As we approach the 2025 tax season (filing for the 2024 tax year), the IRS has issued new rules, clarified its definitions, and established the framework for significant changes in how digital assets are reported. In this post, we’ll break down the key changes you need to know about—and what’s on the horizon that could impact you in 2025 and beyond.
Why Crypto Is Squarely on the IRS Radar
The IRS classifies cryptocurrency as property rather than currency. This means that when you sell, trade, or dispose of crypto, you are likely triggering a capital gain or loss—just like with a stock. Additionally, since crypto can be transferred peer-to-peer, across decentralized exchanges, and through wallets without KYC, it has historically been difficult to track. However, this is changing rapidly. The IRS has been investing in blockchain analytics tools, issuing John Doe summonses to exchanges, and, most importantly, modifying tax forms to make crypto harder to overlook.
Updated Crypto Question on the 2024 Form 1040
Let’s begin with the most visible update: the digital asset question on the 2024 Form 1040, which all taxpayers must answer, regardless of their involvement with cryptocurrency. Here’s the updated language for Tax Year 2024 (filing in 2025):
“At any time during 2024, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
This updated wording narrows the focus to taxable transactions and clarifies that the receipt of digital assets as compensation or rewards (such as from staking or mining) is reportable. If you only purchased crypto with fiat and didn’t sell, earn, or swap it, you can safely answer “No.” But if you earned, sold, traded, spent, or otherwise disposed of crypto, the correct answer is “Yes”—even if no tax is ultimately due.
1099-DA: New Crypto Tax Form Rolling Out
A major update is finally arriving for tax year 2025: the long-awaited Form 1099-DA. This form is the IRS’s solution to the lack of standardized reporting in the digital asset space. Enacted under the Infrastructure Act in 2021, the 1099-DA is scheduled to be issued by brokers of digital assets starting January 2026, for transactions that occur during calendar year 2025.
With the release of the new form and reporting regime, taxpayers can expect the following changes in 2025 and beyond:
- Regulations are expected to be expanded sometime in 2025.
- Exchanges and brokers are ramping up to capture cost basis and transaction data.
- You likely won’t receive a 1099-DA for the 2024 tax year, but next year (2025 activity) will be a different story.
*Important: Taxpayers are still required to accurately self-report cryptocurrency activity for 2024, even if they do not receive a 1099 form.
More Enforcement, Better Tracking
The IRS has partnered with firms such as Chainalysis and Palantir to analyze blockchain data and match wallet activity to taxpayers, including activity across non-custodial wallets. If you’ve moved funds between wallets, staked assets, or used DeFi, don’t assume you’re flying under the radar.
The IRS launched Operation Hidden Treasure, a task force within the Office of Fraud Enforcement, specifically targeting taxpayers who underreport crypto income. Given the IRS’s heightened focus on cryptocurrency reporting, we can anticipate:
- More enforcement letters (e.g., IRS Letters 6173, 6174, and 6174-A)
- Increased scrutiny of staking rewards, airdrops, and NFTs
- Audit triggers related to large crypto flows with no reported gains
Expanded Definition of Digital Assets
As of 2024, the IRS has standardized the term “digital asset,” which includes:
- Cryptocurrencies (e.g., BTC, ETH)
- Stablecoins (e.g., USDC, DAI)
- Non-fungible tokens (NFTs)
- Certain wrapped tokens and derivatives
Expect this term to carry forward into all future guidance, especially once 1099-DA reporting begins.
What You Should Do in 2025
- Keep Detailed Records
The IRS doesn’t need a 1099 to audit you. If you’ve used multiple wallets, moved funds, or traded on DEXs, it’s on you to:
- Track cost basis
- Record acquisition/disposal dates
- Capture fair market value at time of trade
- Note fees paid
Crypto tax software, such as Koinly, CoinLedger, ZenLedger, or CoinTracking, can help. Better yet—work with a crypto-savvy CPA.
- Report All Taxable Transactions
Everyday taxable events include:
- Trading one crypto for another
- Using crypto to buy goods or services
- Earning crypto via staking, mining, or play-to-earn gaming
- Receiving airdrops
- Selling NFTs
Even gifts and transfers between wallets can have significant implications, especially when moving across blockchains.
- Consider Amending Past Returns If You Missed Reporting
If you’ve filed in past years without reporting crypto activity, it’s not too late to fix it. Amending your return now is far safer than getting a letter later. The IRS has shown leniency for voluntary corrections—but not for intentional omissions.
The Window for Crypto Tax Ignorance Is Closing
The time for casual cryptocurrency investment without considering tax implications has passed. The IRS is catching up fast, and the 2025 tax season is your opportunity to get on the right side of compliance—before 1099-DA, expanded audits, and tighter enforcement raise the stakes even higher.
Cryptocurrency investments may be volatile; however, your tax compliance should not be. Navigating the complexities of cryptocurrency taxation can be challenging, and the consequences of non-compliance can be significant. At Chainwise CPA, we specialize in digital asset reconciliation and compliance for all investors, from casual traders to DeFi power users.
Contact us today for expert assistance in ensuring your cryptocurrency tax obligations are met accurately and efficiently.