Starting January 1, 2025, the implementation of Form 1099-DA and finalized crypto reporting regulations will significantly impact your tax preparation practice. Here's what you need to know to prepare your clients and practice.
James Creech, Director of Tax Advocacy at Baker Tilly, warns that practitioners need to prepare for a massive influx of potentially inaccurate reporting data. The transition from minimal reporting requirements to comprehensive 1099-type reporting will create substantial challenges for the 2025 tax season.
Key Preparation Points:
The new reporting framework will create complexity in basis tracking and gain/loss calculations. For example, clients who purchased Bitcoin at $100,000 and sold at $50,000 may receive 1099-DAs showing only the proceeds, potentially misrepresenting a $50,000 loss as a $50,000 gain.
The regulatory framework stems from modifications to IRC sections 6045 and 6050, which mandate reporting requirements for crypto brokers. While the Treasury attempted to clarify definitions and requirements, some ambiguity remains in the final regulations.
Practice Management Considerations:
- Expect significant reporting volume - estimates suggest up to 6 billion 1099-DAs annually
- Each client's crypto transaction will generate a separate 1099-DA
- Initial years will likely produce incomplete reporting with accurate proceeds but potentially inaccurate basis information
- Prepare for challenges in basis tracking across multiple exchanges
Future Regulatory Expansion:
Treasury plans to extend these regulations to cover:
- Peer-to-peer exchanges
- Alternative marketplaces
- Any platform that facilitates crypto price setting or fee charging
Practice Tips:
- Develop a systematic approach for processing multiple 1099-DAs per client
- Create client education materials about maintaining accurate basis records
- Implement additional review procedures for crypto transactions
- Consider updating engagement letters to address cryptocurrency reporting requirements
The regulations take effect January 1, 2025, leaving limited time for preparation. Consider implementing specific procedures now to handle the anticipated volume of information returns and potential discrepancies between reported information and actual transaction details.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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