Form 1099-DA: Definitive Guide 2023

If you’re buying and selling cryptocurrency, you might receive Form 1099-DA (i.e. “Digital Asset”) in the near future. 

Recent reports suggest that cryptocurrency exchanges may soon be required to send this form to customers. 

In this blog, we’ll break down everything we know so far about Form 1099-DA and explain how it can help you file your cryptocurrency taxes. 

What is a Form 1099? 

Form 1099 is used to report non-employment income (income you receive outside of your job) to the IRS. 

Currently, there are more than 20 different variations of Form 1099. The versions most commonly used by cryptocurrency exchanges are Form 1099-B, Form 1099-MISC, and Form 1099-K. 

For more information, check out our guide to Form 1099 for cryptocurrency. 

What is Form 1099-DA? 

An article in Bloomberg stated that the IRS will be unveiling a new version of Form 1099 in the near future: Form 1099-DA. This form is specifically designed to handle the reporting for cryptocurrency and digital assets. 

Why is the IRS creating Form 1099-DA?

In November 2021, the American infrastructure bill was signed into law by President Biden. The bill stated that cryptocurrency exchanges would be required to report their customer’s capital gains and losses to the IRS through 1099 forms starting in the 2023 tax year. 

This law drew criticism from prominent voices in the cryptocurrency ecosystem. Cryptocurrency’s unique properties make it difficult for exchanges to accurately report their customers’ capital gains and losses. 

It’s likely that the IRS is creating Form 1099-DA to tackle this issue and make it easier for cryptocurrency exchanges to report their customers’ activity. 

What’s the problem with the current 1099 forms? 

Remember, cryptocurrency capital gains are typically calculated through the following formula. 

However, it’s often difficult for exchanges to track cryptocurrency cost basis. Consider the example below. 

If David decides to sell his Bitcoin for $20,000, BlockFi won’t know his original cost basis. His cost basis may be reported on his tax form as ‘missing’ or ‘unknown’ on his 1099 form.  

Unless David can prove that he originally bought his Bitcoin for $10,000, he may be responsible for the full $20,000 of capital gain. As you can imagine, this missing information can create stress and confusion for taxpayers.
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