Considering investing in cryptocurrency? What you need to know about the new tax reporting rules

<p>The Internal Revenue Service will no longer rely on an honour system when it comes to reporting cryptocurrency trades. Beginning in tax year 2023, any transactions involving potentially taxable digital assets will be reported to the agency by a third party.</p> <p>If you've ever worked or invested in stocks, you're well aware that your earnings are reported to the federal government. This is because both you and the IRS receive a W-2 form from your employer, which details your annual earnings, and a Form 1099 from your broker, which details your stock transactions.</p> <p>However, there have been no comparable third-party reporting requirements for cryptocurrency transactions and transfers – or for any other digital asset, such as NFTs – until now.</p> <p>However, the recently passed infrastructure bill includes provisions requiring crypto industry participants who broker digital asset transactions to issue 1099-Bs for their customers' accounts, which you will begin receiving in early 2024 for transactions occurring in 2023.</p> <p>Additionally, in an effort to make money laundering more difficult, the new law requires businesses to report to the IRS whenever they receive more than $10,000 in cryptocurrency in a single transaction (or in two or more related transactions), just as they must when they receive more than $10,000 in cash. Wilful failure to comply with this requirement may be prosecuted as a federal felony.</p> <p>These new reporting requirements will have a number of implications for investors who trade digital assets.</p> <p>You cannot maintain your anonymity.</p> <p>The new reporting requirements benefit crypto investors in two ways. First, they demonstrate that crypto is here to stay. Additionally, given the difficulty of keeping track of all your transactions, obtaining a 1099 may be beneficial.</p> <p>However, the disadvantage will be a loss of anonymity for those who wish to keep their transactions private for personal reasons or who have not complied with their tax obligations.</p>