In a recent development, cryptocurrency exchange Kraken has disclosed that it has submitted 56 million crypto transaction forms to the US Internal Revenue Service (IRS) for the upcoming 2025 tax year. A substantial number of these filings pertain to small transactions, with around 18.5 million forms documenting trades valued under $1 and over half involving transactions of $10 or less.
What Is the Impact of Form 1099-DA on Traders?
According to Kraken, only 8.5% of newly filed Form 1099-DA surpass the $600 threshold, which is the benchmark for mandatory IRS reporting. Conversely, a notable 74% of the forms represent transactions valued at or below $50.
This reporting requirement imposes significant administrative obligations on both the company and its customers. Each form must be duly filed with the IRS and delivered to individual clients, which can become a cumbersome task for frequent traders. Kraken estimates that such users might need to allocate between $250 and $500 annually for additional tax software to comply with these obligations.
“The hours taxpayers spend reconciling these micro-transactions based on incomplete data impose disproportionate costs compared to the revenue collected by the IRS,” the company noted.
Why Are New Reporting Procedures Confusing?
For the year 2025, brokers are required to declare “gross proceeds,” focusing solely on the sale value of transactions without indicating the original acquisition cost. This one-sided approach has sparked confusion among Kraken’s clientele.
Two primary issues amplify these challenges. Firstly, the absence of a “de minimis” exemption in the US means even minimal crypto exchanges trigger reporting requirements. For instance, paying a $7.99 restaurant bill with Bitcoin is a taxable event.
The Cato Institute underscores similar concerns, as mundane transactions like buying a cup of coffee with Bitcoin could lead to extensive tax paperwork.
Adding to the complexities, the taxation of staking rewards is contentious. Present regulations treat these rewards as income, generating immediate tax liabilities regardless of whether the assets are sold.
Key conclusions drawn from Kraken’s findings include:
– Only 8.5% of forms involved transactions above $600.
– $250-$500 likely additional annual cost for tax software for regular crypto users.
– A significant segment of reward reports involved less than $1, primarily from staking.
Congress is currently considering legislation to partially exempt small stablecoin transactions, yet Kraken advocates for a broader exclusion. They encourage a scheme allowing staking rewards to be recognized for tax purposes either upon receipt or sale. Technical systems enabling this flexibility exist but require legal sanctioning for implementation. These initiatives could alleviate the burden for crypto traders facing complex tax scenarios.
