Your Coinbase 1099-DA landed in your inbox showing $340,000 in gross proceeds. Your bank account has $18,000 in it. Both numbers are technically correct. Welcome to crypto tax preparation in 2025.
This isn’t a scare tactic. It’s the actual situation tens of thousands of US crypto traders are navigating right now — and most of them don’t know how badly their tax software is about to misrepresent their liability. Let’s fix that.
The Foundation: Crypto Is Property, Not Currency
Everything in crypto tax prep flows from one IRS principle: the IRS classifies cryptocurrency as property, not currency. That classification — unchanged since Notice 2014-21 — means any time you sell, trade, or otherwise dispose of crypto, you could trigger a capital gain or loss.
There are two buckets of tax treatment you need to understand:
Capital gains and losses — triggered when you dispose of crypto you were holding as an asset. If you own cryptocurrency for one year or less before selling, you’ll pay the short-term capital gains tax on the profit. Short-term capital gains on crypto are taxed at ordinary income tax rates. Hold longer than a year, and the rates are 0%, 15% or 20% depending on your income and filing status.
Ordinary income — triggered when you receive crypto as a reward or payment. Certain crypto activities generate ordinary income, taxed at your regular income tax rate. This includes getting paid in crypto, mining or staking rewards (the FMV of tokens at the time of receipt counts as income), and airdrops or promotional rewards, which must be reported as income.
Not a taxable event: buying crypto, holding it, or moving coins between wallets or accounts you own or control, if you did not pay the transfer fee with digital assets.
What Changed in 2025: Form 1099-DA Is Real Now
The 2025 and 2026 tax years represent a genuine inflection point: Form 1099-DA reporting has now begun in earnest.
The most immediate development is Form 1099-DA, the IRS’s new information return for digital asset proceeds from broker transactions. This form applies to transactions occurring on or after January 1, 2025, with forms issued to taxpayers and the IRS beginning in early 2026.
Starting with 2025 transactions, covered US digital asset brokers — including most centralized exchanges — are required to report your crypto sales to the IRS using Form 1099-DA. This means exchanges send information about your transactions to both you and the US government at the same time — a notable shift from previous years.
The Critical Catch: Gross Proceeds ≠ Taxable Gain
Here’s what most people get wrong. Because basis reporting is not required for 2025 transactions, many 1099-DA forms issued in 2026 will show gross proceeds but blank or incomplete basis fields.
Gross proceeds refer to the total amount you received from selling or exchanging cryptocurrency, before accounting for any costs or fees. For example, if you sold Bitcoin for $1,000, that $1,000 would be your gross proceeds — even if you initially paid $900 for the Bitcoin or incurred a fee for the sale.
So when your 1099-DA shows $340,000, that’s not your gain. That’s your revenue. Your gain is revenue minus cost basis. If you don’t supply that cost basis on Form 8949, the IRS computes your gain as 100% of proceeds. That is a number you do not want the IRS computing for you.
What 1099-DA Doesn’t Cover
The form has a significant blind spot. The form will not capture DeFi activity, non-custodial wallet transactions, or assets transferred between exchanges, so the 1099-DA represents a floor, not a ceiling, on what needs to be reported.
Liquidity pool deposits/withdrawals, yield farming rewards, token wraps, and NFT trades may create taxable events that won’t show up on 1099-DA. You’re still responsible for all of it.
The Per-Wallet Cost Basis Rule (This One Catches People)
Prior to 2025, many traders tracked their crypto using a “universal pool” — one combined cost basis across all wallets and exchanges. That’s gone.
The IRS has eliminated the “universal method.” Under the IRS’s digital asset basis rules, you’re now expected to maintain cost basis records on a per-wallet or per-account basis, rather than treating everything as one combined pool.
Revenue Procedure 2024-28 eliminated the universal pooling method many investors previously used. Under this guidance, crypto cost basis must now be tracked by account and wallet, not as a global average across platforms.
Practical example: You bought 1 ETH on Coinbase in 2021 for $2,000. You later bridged it to a self-custody wallet, then moved it to a DeFi protocol. When you eventually sell, Coinbase’s 1099-DA might not know any of that history. Exchanges can only report cost basis for assets they held from purchase to sale. If you moved crypto between platforms or wallets, you’re responsible for tracking what you originally paid.
Missing that history doesn’t make the cost basis disappear. It just makes it your problem to reconstruct.
Taxable Events: A Practical Rundown
Not everything is a taxable event. Here’s what triggers tax:
Capital Gains Events
- Selling crypto for USD
- Trading one token for another (BTC → ETH is a sale of BTC)
- Using crypto to pay for goods or services
- Receiving crypto via token swap in a DeFi protocol
Ordinary Income Events
- Staking rewards: the IRS taxes staking rewards as ordinary income, with the taxable amount equaling the FMV at the time you gain dominion and control. If you later sell, swap, or spend those rewards, you may owe capital gains tax. Two taxable events, one position.
- Airdrops, mining rewards, DeFi yield, being paid in crypto for services — all ordinary income at FMV on receipt.
One thing to know about stablecoins: the IRS continues to treat stablecoins as property, meaning that technically a swap from Bitcoin to a stablecoin is a taxable event. “But I just parked it in USDC” is not a defense.
Not Taxable
- Buying and holding
- Moving assets between your own wallets (without paying gas fees in crypto)
- Moving assets from your crypto wallet to a staking platform isn’t a taxable event, since you’re just changing the location without affecting the assets’ ownership or value.
The Forms You’ll Actually Use
Form 1099-DA
You receive this from your CEX. It reports gross proceeds. For 2025 transactions, cost basis is generally not included. Do not prepare your tax return from the 1099-DA alone. You should reconcile the form to your wallet and exchange records, document your cost basis and accounting method, and retain support in anticipation of IRS matching and automated notices.
Form 8949
Form 8949 is essential for detailing each crypto transaction, including the acquisition date, disposal date, proceeds, and cost basis. This form categorizes transactions based on whether they are short-term (held for less than a year) or long-term (held for more than a year), as tax rates vary based on the holding period.
For 2025, most exchange-based trades will use Box B (proceeds reported by broker, basis not reported). DeFi and non-custodial wallet activity uses Box C. Box A applies only when both proceeds and basis were reported, which will begin for “covered” crypto acquired on or after January 1, 2026.
Schedule D
Once Form 8949 is completed, the totals are transferred to Schedule D, which consolidates all capital gains and losses for a taxpayer’s annual return.
Schedule 1 (Form 1040)
This is where staking income, mining rewards, airdrops, and DeFi yield go — ordinary income from staking, mining, forks, and similar activity not reported elsewhere goes on Schedule 1, line 8v if it is not wages or business income.
Losses: The Part People Leave on the Table
Crypto losses are real tax assets. If you sell crypto for less than you bought it for, you can use those losses to offset gains you made elsewhere. If losses exceed gains, up to $3,000 may offset other income per year, with remaining losses carried forward. Those carryforwards roll into future tax years indefinitely.
The wash sale rule — which prevents you from selling a stock at a loss and immediately rebuying it — does not currently apply to crypto as it does with stocks, as Section 1031 no longer applies to crypto-to-crypto trades. This is actively debated in Congress, but as of 2025 tax year, crypto wash sales are not subject to the same rule as securities. Your situation may differ; verify with a tax professional before acting on this.
The IRS Matching Problem
The IRS receives a copy of every 1099-DA, meaning the agency can now match reported crypto proceeds against a taxpayer’s return much as it does with stock sales. Clients whose returns do not reconcile with their 1099-DA data face CP2000 notices and potential audit exposure.
Any inconsistency between your Form 8949 and the official 1099-DA records could lead to data-matching discrepancies, which the IRS flags automatically. 2025 marks the first year when crypto data matching becomes institutionalized.
This doesn’t mean you’re in trouble if your numbers differ from the 1099-DA. It means those differences need to be explained, with documentation. Transferred an asset between wallets and the broker miscoded it as a sale? That needs a reconciliation note, not just a different number on your return.
What Preparation Actually Looks Like
Here’s the workflow for a reasonably complex US crypto trader:
- Collect all 1099-DAs from every CEX you used in 2025. Brokers were required to send taxpayers a copy by February 17, 2026. If you haven’t received one from an exchange you traded on, check your portal.
- Export all transaction history from every wallet and exchange — including DeFi protocols, bridges, and NFT marketplaces. The 1099-DA doesn’t cover most of this. You still owe tax on it.
- Reconcile transfers. Every asset movement between your own wallets needs to be documented as a transfer, not a sale, and cost basis needs to follow the asset.
- Identify your cost basis method (FIFO, HIFO, Specific ID) and apply it consistently per wallet. Taxpayers can continue using accounting methods like FIFO, LIFO, or HIFO for cost basis calculations in 2025.
- Separate income from gains. Staking rewards, yield, and airdrops are ordinary income reported on Schedule 1. Subsequent sales of those same tokens create a capital gain or loss on Form 8949.
- Reconcile your Form 8949 against every 1099-DA you received. Any discrepancies between your tax filing and the IRS’s copy of Form 1099-DA could trigger a CP2000 under-reporting notice or even an audit.
DeFi, Multi-Chain, and the Long Tail
If you used Uniswap, Aave, Pendle, Curve, or any other DeFi protocol in 2025, your tax picture is more complicated than your 1099-DA suggests. The final regulations do not include reporting requirements for brokers commonly known as decentralized or non-custodial brokers that do not take possession of the digital assets being sold or exchanged.
That means DeFi swaps, LP deposits and withdrawals, wrapping/unwrapping tokens, yield farming rewards — none of that shows up in any 1099-DA. And yet all of it is potentially taxable under the same property rules as CEX trades. You yield-farmed 12 protocols and forgot about it. The IRS didn’t forget.
Multi-chain activity is especially messy because per-wallet basis tracking means every chain is its own accounting silo. ETH on Ethereum mainnet and ETH on Base are held in different accounts. Basis doesn’t automatically travel with the asset when you bridge. Track it or reconstruct it — those are the two options.
One Last Thing Before You File
Even without a Form 1099-DA, you must report taxable crypto transactions. The form is a starting point and a cross-check. It is not a substitute for your own records.
If your 2025 activity involved more than a handful of CEX trades — if you touched DeFi, bridged assets, staked anything, received an airdrop, or moved tokens between wallets — the 1099-DA alone will not get you to a complete and accurate return. The gap between what the form shows and what you actually owe (in either direction) is where the errors happen.
This is general guidance, not tax advice. Your situation is specific to your transaction history, accounting method choices, and jurisdiction. Before filing, consult a qualified crypto tax professional — or reach out to us at BCTP and we’ll take it from there.
Need help with your crypto taxes? Mike Ring and the BCTP team handle the messy stuff — multi-chain DeFi, 1099-DAs that don’t add up, prior-year amendments. Free consult at cryptotaxprep.io or call 410-320-7348.
This isn’t tax advice. Talk to a professional about your specific situation.
