As Bitcoin surges, IRS steps up oversight
A new rule covering how you track and report your crypto investments is the latest example of the tax agency’s growing focus on digital assets.
If you’re one of the 65 million Americans who own cryptocurrency, it’s time to change the way you track your investments.
The IRS has implemented a new form and a new rule this year addressing how crypto investors report the profits or losses they incur when trading virtual money.
It’s the latest example of the IRS’ growing focus on cryptocurrency, which has soared in popularity and presents unique challenges for tax collectors and regulators.
“With the IRS paying closer attention to crypto assets, it’s essential for those who invest in or use virtual currency to keep careful records to avoid the risk of audit,” said Robert Persichitte, a certified public accountant and an affiliate professor in Metropolitan State University of Denver’s College of Business.
The IRS treats cryptocurrency as it does stocks, bonds and other assets. If you earn, buy, sell, trade or spend cryptocurrency, you may owe taxes on the transaction, depending on the cost basis, or original value, of the crypto asset. So you must carefully track and report these transactions on your tax return.
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Crypto investors manage their digital assets in electronic “wallets,” and they may own many wallets across multiple exchanges — the platforms that allow users to buy and sell cryptocurrency.
Previously, all digital assets from all wallets and exchanges were combined into one pool for tax-reporting purposes. The new IRS tracking rule, which went into effect Jan. 1, requires cryptocurrency holders to calculate and report profits and losses for each individual wallet rather than through the universal tracking method.
The upshot is that wallet-based tracking will make it easier for crypto investors to file taxes, Persichitte said. He pointed out that two major challenges for crypto investors have been reporting ordinary income and managing data from different exchanges. The wallet-based system will provide a more accurate view of transactions and is more aligned with how exchanges report transactions to the IRS.
However, it’s important to note that some crypto investors may face challenges, such as a more complex process and a limited ability to choose tax lots (a record of the details of an acquisition of a security).
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Cryptocurrency is rapidly becoming a popular investment and method of paying for goods and services. An estimated 28% of American adults own some form of virtual currency, up from 15% in 2021. In December, Bitcoin, the most well-known cryptocurrency, reached $100,000 for the first time. It touched $109,000 in January.
As crypto’s popularity has grown, so has IRS oversight. Detailed crypto transactions must be reported on a new form, 1099-DA, for the 2025 tax year. Those forms are expected to go out in 2026.
“Previously, taxpayers had to piece together various bits of information, requiring investigative work,” Persichitte said. The new form should make the process easier for taxpayers.
“Now, everything should be in one place, in one form,” Persichitte said, “making it easier to import into software like TurboTax, which will generate the answer automatically.”
For those interested in jumping on the cryptocurrency bandwagon, Persichitte noted that, as with any investment, there are inherent risks. “If you do your research and become fully aware of the risks and potential gains, there is a lot of opportunity to grow your money that way.”
