What Corporate Owners Should Know About the New IRS Cryptocurrency Accounting Rule

The IRS recently announced a significant shift for cryptocurrency reporting, impacting those who rely on digital assets. Until now, taxpayers could use “universal wallet” accounting, treating all crypto holdings as one entity for tax purposes. Starting in 2025, the IRS requires detailed, account-by-account reporting, a change aimed at enhancing transparency but likely increasing complexity.

Key Changes and Challenges

1. Account-Based Reporting: Under this new rule, each wallet must be reported individually, making it essential for business owners to organize their digital assets meticulously. For example, if your business uses multiple wallets for trading, each wallet’s gains, losses, and transactions must be individually tracked and reported. This new level of precision will demand robust accounting practices.
2. First-In, First-Out (FIFO) Rule: The IRS now defaults to the FIFO methodology for crypto sales. Previously, some holders used the highest-in-first-out approach for favorable tax outcomes. This shift means that business owners may see different taxable gains or losses depending on their past strategies. Properly documenting which assets were bought first can help manage these changes more efficiently.
3. Enhanced Record-Keeping: With universal wallet accounting gone, every wallet transaction will need detailed documentation. For business owners handling frequent transactions or microtransactions, this means preparing for more substantial administrative work, especially if digital assets are part of your business strategy.
4. Increased Compliance and Fees: Account-based reporting will likely increase accounting fees, as more time and effort will be required to ensure compliance. It’s a good idea to consult with a CPA familiar with digital asset reporting to align with the new IRS expectations and keep fees manageable.

Preparing for the January 1 Deadline

Business owners should act now to organize their wallets and ensure clear records for each. Adopting effective “wallet hygiene” practices, such as consistent tracking, transaction labeling, and wallet purpose documentation, can streamline the transition.

Conclusion

The IRS’s shift to account-based cryptocurrency reporting marks a pivotal change for business owners dealing with digital assets. By preparing early—organizing wallets, choosing compliant accounting methods, and enhancing record-keeping practices—businesses can ease the transition and avoid compliance pitfalls. Consulting with a knowledgeable CPA on these changes will further ensure a smooth adaptation to the new requirements, minimizing risks and potential tax liabilities. Proactive steps now will position your business for success in the evolving regulatory landscape of cryptocurrency.