Crypto Taxes & Form 1099-DA

After four years of work, the IRS has finalized its cryptocurrency regulations, and crypto tax reporting now begins. Starting with the 2025 tax year, custodial crypto platforms must report taxable crypto transactions directly to the IRS.

“Digital asset brokers” must handle this reporting when they take custody of the digital assets their customers sell or exchange. These brokers include:

· Operators of centralized trading platforms such as Coinbase, Kraken, and Binance; and

· Hosted wallet providers (also called “custodial wallets”).

Most crypto transactions run through these brokers.

Brokers must file the new IRS Form 1099-DA, Digital Asset Proceeds From Broker Transactions. This form reports the following:

• Customer’s name, address, and taxpayer identification number

• Name and quantity of the digital asset sold

• Sale date

• Gross proceeds amount

Brokers must file the first Forms 1099-DA for the 2025 tax year by March 31, 2026.

For 2025 only, brokers must report gross proceeds from sales or other transfers. Gross proceeds represent the total amount you receive when you sell or exchange crypto, before any fees or other costs. Beginning in 2026, brokers must also report the customer’s cost basis—the original value of the crypto at acquisition plus any associated costs.

With Form 1099-DA in place, you will find it easier to calculate your crypto gains and losses when you file your return.

The regulations also establish rules for how crypto owners determine the basis of their crypto units. FIFO (first in, first out) serves as the default method. During periods of rising prices, FIFO typically produces the largest taxable gains because it uses your earliest—and often lowest-basis—units first.

If you want to reduce tax on crypto transfers, you can use the specific identification method instead. This method allows you to identify the exact units you transfer. Transitional rules for 2025 allow you to use specific identification in your own records without notifying your broker.

The final regulations also require crypto owners to track basis on a wallet-by-wallet basis when they hold crypto across multiple wallets or exchanges. You may no longer treat all your crypto as if it sits in a single wallet or account. If you had crypto in multiple wallets or exchanges on January 1, 2025, you must allocate your unused basis to the specific accounts where you hold each asset

Your next step? Check out our Proactive Tax Strategy & Planning for Business Owners. While you're there, take the 2-minute Tax Strategy Assessment and get some free tax strategy ideas.

We provide these articles as general information and not individualized tax advice.  They do not constitute a client relationship with you, and any information provided here should be applied at your own risk.