The IRS has announced new crypto tax reporting rules that took effect on January 1, 2025. While these changes aim to improve transparency and compliance, they may also add complexity for crypto holders. Here’s a breakdown of how the new rules differ from the previous system, why they may introduce more challenges, and how you can simplify your approach to buying and selling crypto.
The Old Method vs. New Method
Under the old tax reporting method, crypto holders could calculate their gains and losses using a “universal approach”. This allowed them to aggregate data from all their wallets and exchanges into a single calculation, much like how brokerage accounts provide consolidated reports for stock investments.
Now, the IRS requires a “wallet-by-wallet reporting system.” Crypto holders must separately track the cost basis, transaction dates, and gains for every digital asset in each wallet or exchange. This granular approach demands meticulous record-keeping, increasing the effort needed to stay compliant.
Analogy: Imagine if, instead of using a single brokerage account to trade stocks, you had several accounts spread across different platforms. For each trade, you’d have to track the purchase price, sale price, and transaction dates separately for every account. At tax time, rather than receiving a single consolidated statement, you’d have to compile and calculate the details manually from each individual account.
That’s what the new IRS crypto tax rules are like for crypto holders. Each wallet or exchange is treated as a separate account, and you must track the cost basis and gains for every transaction within each one.
Example: Universal Method vs. New Method
Universal Method (Old Rules)
Imagine you bought 1 BTC over time using two different exchanges:
- Exchange A: You bought 0.5 BTC for $25,000.
- Exchange B: You bought 0.5 BTC for $30,000.
Later, you sold the full 1 BTC for $60,000. Under the old universal method, you could treat all your wallets and exchanges as one account. You simply reported the total cost of your 1 BTC and the sale price. This streamlined approach allowed you to calculate gains without worrying about where the BTC came from.
New Method (2025 Rules)
Now, the IRS requires you to track each wallet and exchange separately. Using the same example:
- For the 0.5 BTC from Exchange A, you need to report its original purchase price and the amount you sold it for.
- For the 0.5 BTC from Exchange B, you must do the same, keeping the transactions separate.
This means you can no longer combine the costs or sales into one calculation. Each fraction of BTC must be individually reported, even if the total gain is the same.
What Makes This More Complicated?
The new IRS rules mean that even routine crypto activities could create tax reporting challenges. For example:
- Transfers Between Wallets: Moving crypto from one wallet to another isn’t a taxable event, but under the new rules, you must track and report the cost basis of the transferred asset in the receiving wallet. Failure to do so accurately may result in the IRS treating the transaction as missing or incorrectly reported.
- Earnings from Crypto Activities and Complex Transactions: Rewards earned from activities like staking or receiving free tokens (commonly known as airdrops), as well as transactions on decentralized finance (DeFi) platforms, must now be meticulously tracked. Whether you’re earning interest, providing liquidity, swapping tokens, or receiving rewards, each event is treated as a separate taxable transaction. This requires accurate documentation of the value or cost basis at the time of the event and detailed tracking of every step in these often multi-layered processes.
- Risk of Missing Details: The level of granularity required increases the likelihood of errors. Any missing or incorrect data could lead to inaccurate tax filings and potentially hefty penalties.
These changes create higher administrative burdens, increase the risk of errors, and highlight the need for simpler ways to stay compliant.
Can You Avoid New Tax Reporting Requirements For Crypto?
There are options available where the IRS does not require detailed reporting. You can buy and sell crypto in a Crypto IRA without the burden of managing and tracking your transactions.
- No Immediate Tax Reporting: Transactions within a Crypto IRA aren’t subject to capital gains taxes, so you don’t need to log and report every trade.
- Tax-Advantaged Growth: With a Traditional or Roth IRA, your crypto can grow tax-deferred or even tax-free*.
- Simplify Your Crypto Holdings: Keep all your crypto assets in one account, not worrying about the complexities of crypto wallets and security.
A Crypto IRA allows you to buy, sell, and hold dozens of crypto assets (including Bitcoin, Ethereum, Solana, XRP, and more), in a tax-advantaged account, reducing much of the administrative burden.
At iTrustCapital, we make transactions simple so you can buy and sell without worrying about managing and tracking your transactions.
Discover how a Crypto IRA with iTrustCapital can simplify your portfolio today!
*Some taxes may apply.
*Some taxes may apply.
DISCLAIMER
This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.
iTrustCapital is a cryptocurrency IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.
Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.
Some taxes and conditions may apply depending on the type of IRA account. Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Consult a qualified legal, investment, or tax professional.
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