The U.S. Treasury Department and Internal Revenue Service (IRS), the country’s official tax collection authority, have jointly proposed new guidelines for governing crypto tax collection.
The guidelines have made it mandatory for cryptocurrency holders to disclose their holdings directly to the IRS from 2026.
The decentralized exchanges that are mere facilitators of cryptocurrency transactions and do not hold any assets themselves are exempted from following this regulation.
The new guidelines have clarified how and to whom the tax-related matters of cryptocurrency transactions should be reported. It is the implementation of a provision of the Infrastructure Investment and Jobs Act (2021).
The Reporting Guidelines in Detail
The new guidelines are a definite framework for reporting the tax related to cryptocurrency transactions.
From 2026, all crypto platforms are mandatorily required to fill out a 1099 form and include their gains from the crypto platforms under the section titled “incomes”. This method will provide a clear picture of the assets and sources of income of a crypto holder.
The new regulations will also help the IRS track down any attempts at tax evasion. As IRS Commissioner Danny Werfel said, the new regulations will bring into the light any attempts by crypto holders at hiding their incomes behind crypto transactions or not following the rules in the highly volatile digital assets space.
The decentralized platforms that serve the role of intermediaries to facilitate trading between different cryptocurrency holders are not included in the current regulations. They will be brought under a separate regulation.
The regulations also ensure that high-income groups and individuals do not evade the taxation process by transferring fiat currency revenues to cryptocurrency.
IRS had released a draft version of the 1099 forms that should be used for recording cryptocurrency transactions. The final version will be launched shortly, well before the new regulations come into effect.
The new rules are expected to gain a revenue of over $28 billion in a decade to the US government in terms of tax on cryptocurrency-based incomes.
The reporting of transactions involving stablecoins is limited to a threshold of $10,000.
Criticisms
Even though this regulation was seen as an excellent move by the majority of US citizens, there have also been some criticisms arising from the concerned tax-paying community.
The definitions of crypto broker, as given in the regulations, are too explanatory that they violate the privacy of the crypto owners and traders.
The IRS and the US Department of Treasury have said that they will coin a new rule to include the exclusive requirements of the decentralized crypto exchanges and cryptocurrency brokers.
Cryptocurrency Taxes In Detail
The US government has implemented separate tax rules for incomes from cryptocurrencies, since the beginning of the emergence of the digital currency ecosystem.
Cryptocurrency taxation and its implementation are subject to debate as most of the digital currencies are exchangeable with fiat money.
Investors are required to pay taxes if they gain income by selling cryptocurrencies or use them for any other transaction that adds value to their crypto holdings.
Crypto miners should pay tax by considering it as ordinary income. Business people who receive cryptocurrencies as part of their business dealings should give taxes based on it being business income.
The taxable events involving a cryptocurrency transaction are given below.
- Selling digital currency to receive fiat currencies in return.
- Selling of digital currency to get properties, goods, or services in return.
- Sale or exchange of one digital asset for another asset.
- Receiving digital assets in exchange for goods and services
- Receiving digital assets in return for aiding in hard forking, staking, or mining on any digital platform.
- Receipt of digital coins through an airdrop event
However, donating cryptocurrencies to a non-profit or charitable organization, gifting cryptocurrencies, and transferring cryptocurrencies between two or more wallets are not taxable activities.
The Bottom Line
Cryptocurrency taxation is a complicated affair as it involves both income tax as well as tax on capital gains.
The new tax reporting procedures proposed by the US Treasury Department and the IRS are expected to solve the long-standing confusion in the field of taxation.
It is thought to regulate crypto taxes, which will in turn enhance the tax revenue of the country.
