Investors can take this crucial step to minimize future crypto tax liabilities.

• Crypto investors must act before Jan. 1, 2025, to avoid potential tax implications amid the latest bitcoin rally.
• To avoid inflated profits, investors must determine their "basis," or the original purchase price of their cryptocurrency.
• On Wednesday, the price of bitcoin surpassed $93,000, setting a new record and continuing its post-election growth.

Crypto investors must act before Jan. 1, 2025, to avoid potential tax implications amid the latest bitcoin rally.

In July, the U.S. Department of the Treasury and IRS released final tax reporting rules for digital asset brokers, which included phased-in guidelines.

In 2026, brokers will report gross proceeds from 2025 sales using Form 1099-DA. In 2027, brokers will include the original purchase price for sales in 2026, known as the "cost basis."

The IRS considers your basis as zero if you can't prove it, which can increase your gains. Your profit is calculated by subtracting your basis from the sales price.

On Wednesday, the price of bitcoin surpassed $93,000, setting a new record and continuing the post-election rally.

Matt Metras, an enrolled agent and owner of MDM Financial Services in Rochester, New York, stated that people often overlook tax consequences when they witness rapid growth.

Avoid a tax 'reporting nightmare'

Now, crypto investors can track basis using a "universal method" that consolidates assets into a single account, regardless of where their crypto is stored in digital wallets.

Crypto investors could determine the basis of an asset when selling it under the universal method, using their inventory method.

According to Sulolit Mukherjee, executive director of compliance and implementation for the IRS' Office of Digital Asset Initiative, starting in 2025, the "universal method" will no longer be used and reporting will occur at the wallet level.

According to the IRS revenue procedure released in July, investors must establish a "reasonable allocation" of basis by Jan. 1, 2025.

To avoid a "reporting nightmare" in the future, Mukherjee advised investors to share their brokerage details with their brokers, as he spoke at the American Institute of CPAs' national tax conference in Washington, D.C., on Tuesday.

IRS ramps up digital asset enforcement

The IRS is intensifying its focus on digital asset enforcement with the introduction of new reporting requirements.

"IRS Commissioner Danny Werfel stated in July that these regulations are crucial to the larger effort on high-income individual tax compliance. He emphasized the need to ensure that digital assets are not used to conceal taxable income and that the final regulations will enhance the detection of noncompliance in the high-risk area of digital assets."