Tax Season Survival Guide for Web3 Founders

Tax season is a crucial time for Web3 founders. In 2025, through changes in tax regulation, the government and the IRS have begun to monitor Web3 taxation more cautiously.

This has made structured, tax-compliant and transparent, professional bookkeeping a greater challenge for founders due to the complex nature of a Web3 company’s financials. Let’s get into how Web3 founders can navigate tax season in compliance with these changes.

The Importance Of Tax Season For Web3 Companies

Proper tax-keeping during and even after tax season is more than a legal requirement. There can be serious consequences to not following regulatory frameworks and keeping unclear records.

Form 1099-DA’s Impact on the Tax Landscape

This was a form introduced on January 1st, 2025 for crypto-taxing. Form 1099 DA was specifically created for digital asset transactions, including cryptocurrencies, tokenized assets, trade through digital assets and NFTs.

Due to it, brokers must report digital asset trades directly to the IRS. Additionally, the law requires crypto platforms to report any user activity such as wallet transactions and decentralized apps to the IRS. The IRS now tracks taxable events such as revenue in crypto, token sales or token compensation as well.

It also means that the IRS can now compare platform reports against user reports, with potential mismatches leading to audit investigations, penalties or potential legal exposure.

Tax Timelines & Proactive Taxing Policies

Tax season doesn’t begin in March or April. Companies should ideally begin preparations as early as January and take initiative such as hiring professional accountants or a tax consulting firm. Here is a timeline that helps to follow key taxation events:

January 15: This is the Q4 Estimated Tax Payment. It applies to companies with pass-through income, such as LLCs and DAOs.

January 27: The IRS begins accepting and processing federal tax returns, officially starting tax season.

January 31st: This is the last deadline for issuing W-2’s, 1099 -NECs and 1099-MISCs for any service provider payments in fiat or crypto.

February 17: The last date to file Form 1099 DA. Failure to report this can cause financial penalties, which vary form to form. If intentional disregard for the penalty is shown, the IRS may penalize 10% of the income.

March 17: If your Web3 company is structured as an S-corp or a partnership, this is the deadline for Forms 1065/1120-S.  The IRS multiplies late filing penalties by the number of partners.

April 15: The last day to file Form 1040 for individual tax returns or Form 1120 for corporate tax returns. This only applies if a Web3 company is structured as a C-Corp. This is also the last day to file Q1 2025 estimated tax payments.

Not preparing for this timeline in advance can create discrepancies in accounts, complicating finances for Web3 companies even more. Additionally, most business tax accounting services are more wary of onboarding new clientele late into tax season because of timeline issues.

Essential Taxation Preparation For Web3 Companies

Founders can face several unique taxation challenges. This is because traditional systems were not built for Web3 companies. Digital assets, for example, can be both currency and property. Every token spent, staked or swapped counts as a taxable event. Traditional accounting tools also do not keep track of on-chain activity – and these are only two aspects of Web3 companies that on their own create significant difficulty for taxation services. Due to these technicalities, IRS tax help becomes a mandatory investment.

Here are some strategies founders can implement to better prepare for tax season:

Accurate Reconciliation of On-Chain Activity

Reconciling on-chain activity is crucial. Founders should ideally track every on-chain transaction and compile information such as cost-basis (the asset’s original value), a timestamp and the category of the transaction. A professional bookkeeping service specializing in Web3 companies can help guarantee accurate reconciliation.

Any swaps, wallet transfers or token flows, staking rewards and DeFi events come into on-chain activity. This means proper categorization of each transaction is essential. At the end of this process, the company should be able to provide a comprehensive overview of its financial history and activity, ensuring on-chain data matches with internal records.

Frequent Internal Auditing

These internal audits can be pivotal when catching compliance errors that were not previously registered. Some common record-keeping errors can look like unfiled tax forms like 1099s, improperly classified transactions and misreported token income. CFO services for small businesses can assist with ensuring these internal audits do not miss anything and efficiently cover all financial bases.

These preventive measures can help Web3 founders stay ahead of external regulators and IRS audits, avoiding potential penalties or criminal risk. To do this, companies should prioritize quarterly internal audits for regular, balanced record-keeping.

Implementing Payroll Systems

Since Web3 accounting differs greatly from conventional systems, a smart strategy is to implement a master payroll ledger. This acts as one centralized audit trail that can be shown to regulatory bodies. A payroll management service well-versed in Web3 accounting can help in this area.

Since this audit trail can be used to verify internal records against IRS’ own reports, implementing a robust payroll system can help avoid IRS scrutiny and boost stakeholder trust. This shows that the company values transparency, which is an advantage for potential investors, who value professional record-keeping and tax compliance.

Choose Fortress Accounting For Professional Web3 Accounting

Conceptualizing, implementing, and efficiently managing a financial system for a Web3 company can exceed what most start-ups, small businesses, or even larger firms can handle. However, prioritizing this is in every company’s best interest.

To that end, hiring a professional tax preparation service such as the one offered by Fortress Accounting can be monumental in ensuring tax compliance.

Fortress Accounting is a veteran business tax accounting service provider in Delray Beach, Florida, with expertise in working with Web3 companies of all sizes. For tax filing services that eliminate compliance-related vulnerabilities and ensure proper record-keeping, contact them today!

Author Bio:

Earn Marks is a renowned financial writer that’s published informational content for start-up owners looking to scale their business. Specialising in financial literacy, industry trends, and tech development, Earn has a background in policy analysis as well as a masters in economics. He has an intuitive sensitivity to the struggles of start-up owners’ in today’s complex and challenging economic landscape. Known for a writing style that makes complicated issues more accessible, Earn Marks brings owners one step closer to meeting their business goals.