Thread by @beyond_broke

Big changes are coming for crypto taxes in 2025. If you own digital assets, you NEED to know this. From new accounting rules to mandatory forms, here’s what’s changing and how to stay compliant.
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Crypto tax rules have been fairly consistent since 2017. But in 2025, we’re seeing the biggest shift yet: the end of the universal accounting method. Starting January 1, 2025, the IRS requires wallet-by-wallet accounting.
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What’s wallet-by-wallet accounting? Instead of pulling cost basis from a “universal pool” across all exchanges and wallets, you must now track gains and losses separately for each wallet or exchange.
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If you bought #XRP on Uphold, you can only use that cost basis when selling XRP on Uphold—not if you later transfer it to another wallet.
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This is a big deal because crypto transactions often involve transfers between wallets. Stocks don’t work this way, making wallet-by-wallet accounting much more complex.
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To prepare, the IRS introduced a Safe Harbor Plan. This plan allows you to transition from universal to wallet-by-wallet accounting and ensure compliance. But there’s a deadline: it must be signed and dated before January 1, 2025.
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To set up your Safe Harbor Plan, start by downloading the required form. Next, choose your preferred allocation method; typically selecting the highest-cost allocation first. Finally, sign and date the form, then save it for your records to ensure proper documentation.
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Without a Safe Harbor Plan, you risk facing audits and penalties. The IRS may require you to amend past returns by applying wallet-by-wallet rules, which can be both time-consuming and complex. Additionally, you lose control over how your gains are allocated, potentially leading to unfavorable tax outcomes.
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Starting in 2025, FIFO (First In, First Out) will also be mandatory for crypto. That means when you sell, you must account for your oldest assets first—unless you specify otherwise before the transaction.
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FIFO could mean higher taxes if your oldest assets have the lowest cost basis. The Safe Harbor Plan helps minimize this by letting you allocate your highest-cost assets to the oldest lots.
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Without a Safe Harbor Plan, selling your digital asset at a low basis can trigger a significant taxable gain. However, with a Safe Harbor Plan in place, you can allocate assets purchased at a higher basis as the "oldest," effectively reducing your taxable gains and minimizing your tax liability.
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Starting in 2025, exchanges will issue Form 1099-DA for crypto transactions. The IRS will receive this too, so your records MUST match.
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Form 1099-DA will report proceeds (sale price) but NOT cost basis for 2025 transactions. This makes it critical to have accurate records. If your cost basis isn’t reported, the IRS will assume $0, meaning higher taxes.
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As an example, if you sell Bitcoin for $100K but don’t report the $90K cost basis, the IRS will think you made a $100K profit—and tax you on it.
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Here’s what to do now:
Reconcile all past crypto transactions.
Make sure your cost basis is clear and accurate.
Set up your Safe Harbor Plan to stay compliant and avoid surprises.
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If you need help with this, feel free to send me an email or message through the website and I can get you in touch with professionals to help.
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