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New Crypto Reporting Rules Create More Tax Headaches for Taxpayers: Here’s Why

In the Brief:

  • Crypto exchanges must issue tax forms under new reporting rules, creating a burden for taxpayers who use a mix of third-party and self-reporting
  • They must reconcile 1099-DAs and check exchanges have reported accurately, while traders should track differences to avoid double-counting and omission of cost basis

2 - 4 minute read

New broker reporting rules for centralized crypto exchanges were introduced under the U.S. Infrastructure and Jobs Act. The rules require exchanges to issue tax forms 1099-DA for crypto trades, which creates a significant burden for centralized exchanges and taxpayers. The voluntary tax compliance system in the U.S. means that taxpayers are responsible for calculating and filing their own taxes. Third-party tax forms include W-2s, 1099s, 1098s, and so on. Crypto tax calculations were mostly self-reported. However, the new broker reporting rules relegate taxpayers to a combination of third-party and self-reporting, leaving taxpayers with the onerous task of reconciling all 1099-DAs with their universal calculation to check that exchanges have reported correctly.

This complicated crypto tax reporting is in addition to the myriad of issues already faced by taxpayers when calculating their crypto taxes. Multiple wallets and exchange accounts, as well as various crypto transactions, have to be tracked, which can result in double-counting and under- or over-stating tax liabilities.

For traders, this brings various pitfalls, including double-counting and omission of cost basis resulting from inconsistent cost-basis methods used by exchanges and taxpayers. To avoid these risks, traders must track 1099-DA reconciliation differences, calculate adjustments, and figure out reporting to ensure that final gains and losses are correct.

The delay with 1099-DA will give more time for exchanges to develop better reporting, crypto tax software providers to develop more useful tracking features, and traders to strategize ways to minimize headaches. To improve the current situation for traders, the ideal compromise for final broker reporting rules would be removing the cost basis reporting requirement to eliminate most of the cost basis reconciliation headaches.

The Bottom Line

The new broker reporting rules for centralized crypto exchanges will create a significant burden for traders. To avoid potential risks, traders must reconcile all 1099-DAs with their universal calculation and use consistent cost-basis methods with exchanges. The delay with 1099-DA will give more time to develop better reporting and tracking features, but the ideal solution would be to remove the cost basis reporting requirement altogether.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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