As we approach 2025, the regulatory landscape for cryptocurrency and Web3 is transforming rapidly. Whether you’re an investor in digital assets or a Web3 entrepreneur, it’s crucial to understand and adapt to these changes, which will impact tax reporting, accounting procedures, and potentially your bottom line. In this guide, we’ll walk through key regulatory changes, essential tax forms, and necessary compliance steps for 2025 and beyond, ensuring you’re prepared for what lies ahead.

1. Introduction to New Regulations and Tax Challenges in 2025

The cryptocurrency industry faces one of its most significant years in terms of regulatory changes. The IRS is advancing its efforts to bring digital asset transactions under stricter tax regulations. Patrick Camuso, the managing director of Camuso CPA, a firm specializing in crypto accounting, notes that 2025 will be a pivotal year as the IRS implements new regulations and enforces compliance.

2. Key Regulatory Changes: The New 1099-DA Form

Starting in 2025, crypto investors and Web3 businesses will receive a new tax form: the 1099-DA. This form, which stands for “Digital Assets,” will be sent to anyone transacting in cryptocurrency, and it aims to improve tax reporting accuracy by requiring exchanges to report transaction data directly to the IRS. Here are some critical points to keep in mind:

• Accuracy is Essential: Investors should scrutinize these forms for any discrepancies between what the exchanges report and their own records.
• Avoiding Errors: It’s vital not to double-report income or misalign your tax filings with these new forms. Ensuring that all accounting reconciles correctly can prevent issues with the IRS.

3. The Broker Definition Debate

The IRS has proposed defining brokers broadly, which could extend reporting requirements to decentralized exchanges (DEXs) and other non-custodial platforms. While DEXs are not currently included in this regulation, there is potential for future changes. If the IRS broadens the broker definition, DEXs might be required to implement Know Your Customer (KYC) processes and report user transactions.

The impact of this change would be substantial:

• Innovation at Risk: Should this regulation pass, some platforms may geoblock U.S. users, limiting access to innovative financial products.
• Increased Compliance Burdens: These requirements could force DEXs and users to disclose more personal information, posing challenges for platforms built on the principle of decentralization.

4. Introducing Revenue Procedure 2024-28

Released alongside the finalized broker regulations, Revenue Procedure 2024-28 introduces the most significant changes to crypto accounting since the IRS’s 2014 guidelines. Here’s what to expect:

• Shift to Account-Based Accounting: Previously, crypto accounting was asset-based, allowing investors to pool holdings across multiple wallets and exchanges. Starting in 2025, taxpayers will need to use account-based accounting, treating each holding separately per account.
• End-of-Year Reconciliation: By the end of 2024, investors must reconcile their holdings across accounts. Failure to maintain accurate records could complicate tax filings and lead to additional scrutiny during audits.

This new approach aims to align taxpayers’ records with the 1099-DA reports, ensuring that accounting is consistent across platforms and individuals.

5. Setting Up Standing Orders for Accurate Reporting

As part of the new compliance requirements, investors will need to establish standing orders with brokers, detailing their preferred accounting methods. This shift means that you won’t be able to choose your accounting method after a sale. Instead, you’ll need to specify this information before any transactions.

• Preventing Cost Basis Manipulation: This requirement limits investors’ ability to adjust their tax lots after the fact, addressing concerns around tax abuse.
• Importance of Accurate Reporting: Properly documenting your accounting preferences can prevent misunderstandings during IRS audits, which could lead to fines or interest penalties if discrepancies are found.

6. The IRS’s Enhanced Focus on Compliance

The IRS has documented a high non-compliance rate within the crypto industry, with 75% of crypto traders not reporting transactions. This low compliance rate has prompted the IRS to ramp up its enforcement efforts. In 2025, we can expect a wave of audits and enforcement actions targeting individuals and businesses in the crypto space.

• IRS and Crypto Accounting Software Partnerships: The IRS plans to partner with crypto accounting software providers to ensure accuracy during audits, requiring taxpayers to submit detailed records. Any discrepancies between taxpayers’ records and IRS-calculated figures will place the burden of proof on taxpayers, underscoring the importance of accurate recordkeeping.
• Audit Readiness: Maintaining detailed records and compliance with new regulations will protect against fines and interest penalties.

7. Emerging Tax Issues: On-Chain Sales Tax

One of the most overlooked emerging issues is on-chain sales tax. Historically, many believed that on-chain transactions were exempt from sales tax. However, evolving regulations suggest otherwise. Certain states, including Washington and Pennsylvania, have issued guidance indicating that on-chain transactions may be subject to sales tax if they involve digital products, goods, or services that would otherwise be taxable.

• Sales Tax Compliance for Web3 Transactions: NFTs and other digital assets may soon fall under the purview of sales tax regulations. For example, NFTs representing physical goods could incur tax obligations.
• Real-Time Sales Tax Calculation: Collecting sales tax on-chain presents unique challenges, requiring accurate real-time calculations and user information. Businesses must develop systems to accurately calculate and report sales tax on blockchain transactions.

To stay compliant, businesses transacting on-chain should develop robust reporting and tax calculation frameworks, especially when handling NFTs or digital services that may be taxable.

8. Why This Matters: Protecting Your Portfolio and Bottom Line

Non-compliance can be costly, and as the IRS escalates enforcement, businesses and individuals risk penalties and audits if they fail to comply with these new requirements. Here are some key reasons to prioritize tax and regulatory compliance:

• Mitigating Audit Risks: Following the new accounting standards and standing orders can protect against audits and tax penalties.
• Seizing Tax Planning Opportunities: Proper compliance allows for strategic planning. For example, knowing which wallet to use for specific transactions can minimize tax liability.
• Ensuring Access to Platforms: If DEXs and other decentralized platforms face stringent KYC requirements, many U.S. users may find themselves excluded. Compliance safeguards ongoing access to these platforms.

9. Planning Ahead: Steps for Crypto Investors and Businesses

With these extensive regulatory shifts, 2025 will demand proactive planning from every cryptocurrency investor and Web3 business. As Patrick Camuso advises, now is the time to assess your current tax and accounting practices, reconcile records, and ensure all transactions are documented and reported accurately.

To get started, consider the following steps:

• Organize Your Accounting: Reconcile your digital asset holdings across all accounts by the end of 2024, establishing an accurate baseline for the new account-based system.
• Establish Standing Orders: Communicate your preferred accounting methods with brokers to ensure your tax reporting aligns with IRS requirements.
• Stay Informed on On-Chain Sales Tax: Review state guidelines and monitor emerging trends for on-chain sales tax obligations to avoid unexpected tax liabilities.
• Seek Professional Guidance: The IRS’s new requirements are complex. Consulting with crypto tax professionals, such as Camuso CPA, can help you navigate these changes smoothly.

Conclusion: Proactive Steps for a Compliant 2025

The cryptocurrency regulatory landscape in the U.S. is undergoing its most significant transformation yet. As the IRS steps up enforcement, compliance is no longer optional. By planning ahead, maintaining meticulous records, and adhering to new requirements, you can safeguard your investments and ensure uninterrupted access to emerging Web3 platforms.

At Camuso CPA, we specialize in helping investors and businesses navigate this complex regulatory environment. If you need assistance with compliance, don’t hesitate to reach out. Preparation today will set you up for a prosperous and compliant future in the world of cryptocurrency and Web3.