The crypto space is constantly innovating, and tax law is evolving to keep pace with it.

With the Biden Administration claiming that updating the tax codes "to apply to crypto assets just like they apply to stocks and other securities" would recover $24 billion, it's clear that collecting taxes on crypto assets is a priority for the U.S. government—so it's wise to be up to speed with the latest developments in crypto tax.

New tax rules and guidance are continually released. It’s up to you, or your accountant, to be up to speed on the tax implications of these new rules each year. Tax rates go up and down, tax brackets move, and reporting requirements change. When it comes to crypto taxes, the rule changes have been at times both dramatic—and necessary.

In general, purchased or acquired crypto is taxed as either a capital asset (for capital gains taxes) or as income (which incurs income taxes based on your tax bracket). We’re going to cover some of the new rules and implementations that will be hitting the rule books in 2024 and 2025. Please note that these rules have been either implemented or proposed and may be subject to change during the course of 2024. Their current status has been noted below.

Possible crypto tax rule updates and changes

A 2021 federal infrastructure law included provisions that would require individuals to report key details pertaining to crypto payments over $10,000 in the course of "trade or business," from January 1, 2024. While the reporting requirements—including the name, address, and social security number of the payer—are identical to those required for cash payments over $10,000, the law caused consternation among the crypto community. A key issue identified by crypto users was that for many payments, collecting such data is impossible.

For most crypto users, the reporting requirement would probably not apply; while an NFT artist would likely have to report the sale of an NFT worth $12,000, an NFT collector selling the same NFT for $20,000 would probably not. Jason Schwartz, a tax partner and crypto specialist at law firm Fried Frank, told Decrypt that the IRS is inclined to only classify professional, full-time crypto market participants as traders—meaning the vast majority of crypto users would be exempt from the reporting obligation.

In any case, the law will not be enforced for some time, pending a lengthy period of public comment and review. "Businesses… do not have to report the receipt of digital assets the same way as they must report the receipt of cash until Treasury and IRS issue regulations," the IRS and the Treasury Department said in a joint statement. "This particular provision requires Treasury and the IRS to issue regulations before it goes into effect."

"It is a very contentious tax law, likely only affecting certain transactions within the scope of 'trade or business,'" a spokesperson for Crypto Tax Calculator told Decrypt. "As with most things in crypto, retail users and investors shouldn’t panic and instead await more definitive guidance."

The IRS has announced that it is waiving its standard “failure to pay” penalty for over 4.7 million tax filers who haven’t paid their 2020 or 2021 taxes, including crypto users. That means crypto users who have yet to declare their crypto income from 2020 or 2021 can now pay taxes on those gains, without incurring late fees equivalent to 0.5% of a filer’s unpaid taxes, charged for every month they fail to pay after a filing deadline. The program will last through to the end of March 2024; from April 1, the IRS' monthly late fee will return for all taxpayers.

"It's important crypto users understand that the IRS has only waived late fees to rectify the unfairness of charging them without sending reminders during the COVID-19 pandemic," a spokesperson for Crypto Tax Calculator told Decrypt. "It is highly unlikely relief from late payment penalties will be extended past the 2021 tax year."

In June 2022, legislation was first proposed that would classify decentralized autonomous organizations (DAOs) as business entities for tax purposes. They would also need to be incorporated as a partnership or limited liability company (LLC). As a DAO is neither an individual, group, or business (at least in the traditional sense), this is expected to provide regulatory clarity. However, as a DAO is a blockchain-based organization run by code and smart contracts, it is unclear exactly who would be required to register an applicable DAO. This legislation is expected to be reintroduced in 2024.

There is also the Digital Asset Anti-Money Laundering Act (DAAMLA), first proposed in 2022 by Senator Elizabeth Warren (D-MA). The bill picked up steam in 2023, gaining additional sponsors, though it also faces bipartisan opposition.

The bill would require crypto users and developers to set up anti-money-laundering (AML) protocols that are normally applied to financial institutions (requiring registration as a money service business). This would include crypto miners and even crypto wallet companies. It would also require developers to get permission before publishing their code—and collect information on anyone using it. Critics point out that this requirement would be counter to the U.S. constitution; the U.S. Supreme Court has repeatedly ruled that this would violate the First Amendment.

Further, some of the requirements in this legislation would be impossible to enforce. One requirement is that wallet providers must report users’ transactions and their identity to the government. This is simply not possible with most public blockchain protocols. It also bans the use of any privacy-enhanced protocol or blockchain network.

For crypto purists, cryptocurrency was designed to be an alternative to the legacy financial system. Many in the crypto industry have been banding together to advocate for—and promote—more and practical legislation. They also have been supporting crypto-favorable candidates from both parties. While the passing of these future proposals is still an open question that will be debated in Congress and in the public square, it would be wise to follow the current crypto tax laws as they apply to your specific situation.

Cheat Sheet

• From January 1, 2024, reporting requirements pertaining to crypto payments over $10,000 in the course of "trade or business" technically apply, though the IRS has stated that the law will not be enforced pending a lengthy period of public comment and review.
• The IRS is waiving its standard “failure to pay” penalty for over tax filers who haven’t paid their 2020 or 2021 taxes, including crypto users, through the end of March 2024.
• The Digital Asset Anti-Money Laundering Act is a highly controversial bill that, if enacted, would create onerous reporting requirements on wallet providers, developers, and crypto users.