IRS Ends Universal Cost Basis for Crypto | Multi-Exchange Tax Tracking Just Got More Complicated
Edited By
Elena Ivanova
The IRS is changing the game for crypto tax reporting. Starting in 2025, the agency will shift from the universal cost basis method to a more complex wallet-by-wallet tracking system. This means investors who trade across multiple platforms face tougher recordkeeping tasks.
What This Means for Crypto Investors
For years, many crypto traders mixed and matched purchases across exchanges, using a single cost basis to report transactions. For example, buying Bitcoin at different prices on Coinbase and Kraken meant that individuals could offset gains more easily. However, this strategy is winding down.
The Shift Explained
Under the new system, if you buy BTC at $20,000 on Coinbase and later purchase it at $60,000 on Kraken, the sale must align with the Coinbase cost basis. This could lead to higher taxable gains than before, especially if you bought cheaper assets on other exchanges.
"The IRS is ending universal accounting to reduce mismatches between what you report and what brokers report," said a tax expert.
Why the Change?
The IRS's introduction of Form 1099-DA requires exchanges to report transactions directly to the agency. Each exchange will only see what occurs on its platform. As a result, owners of crypto must keep stricter records.
Investor Reactions
Sentiment in user boards points to concern among crypto traders:
Recordkeeping Efforts: Investors will need to track cost basis accurately across various exchanges.
Loss of Flexibility: Mixing transactions for tax advantage is becoming more challenging.
Possible Tax Increases: If numbers do not match due to errors in tracking, people risk paying more taxes.
Some comments from users exemplify these concerns:
"This change means I'll need to keep better records and be meticulous about where I buy and sell."
"The whole thing feels like too much hassle for casual traders."
What Should You Do?
As tax season approaches, experts recommend using a compliant crypto tax tool to manage these new requirements effectively. A good tool helps track cost basis properly and can generate ready-to-file reports for the IRS.
Key Points to Consider
💡 Transition begins in 2025, affecting all transactions from that year onward.
📊 Tools that support wallet-based tracking are essential now.
⚠️ More recordkeeping may increase risk for misreporting taxes.
End
This regulatory change could significantly impact how traders manage their portfolios. With the IRS tightening the reins on cryptocurrency reporting, keeping accurate records will be crucial to avoid unwanted tax liabilities.
Anticipating the Impact of New Tax Rules
As the 2025 deadline approaches, traders should brace for heightened scrutiny around crypto transactions. Experts estimate about 60% of casual investors will need to adopt new tracking tools to comply with IRS regulations. Those who fail to maintain accurate records risk higher tax burdens, as increased misreporting could lead to fines. Furthermore, the landscape might result in a significant drop in trading activity, as individuals hesitate to navigate the new system, with analysts projecting a 30% reduction in trading volume among everyday investors. It's clear that the computational demands of recordkeeping are set to reshape trading habits, pushing many to re-evaluate their engagement with crypto markets entirely.
A Lesson from the Past: The 1986 Tax Reform
This shift echoes the 1986 tax reform, which fundamentally changed the landscape of U.S. tax policy. Just like then, when many taxpayers were hit with unexpected burdens due to increased compliance requirements, today's crypto investors may feel similarly overwhelmed. The pressing need for meticulous recordkeeping today is akin to the late '80s when a surge in legislative changes ushered in major adjustments in personal finance strategies. Back then, many sought advice made available in different forums and boards, setting a precedent for preemptive adaptations in financial behavior. The parallels remind us that while change can be daunting, history shows that adaptation is often the key to enduring new norms.