If you own Bitcoin, Ethereum, or any other cryptocurrency, tax season is about to get more complicated. The IRS has rolled out new reporting rules that affect millions of Americans.
Digital asset exchanges are now required to report certain transactions on a brand-new form. It’s called Form 1099-DA, and it’s changing how crypto taxes work.
Here’s what business owners and individual investors need to understand.
Key Takeaways
- Form 1099-DA is now required for 2025 digital asset transactions.
- Swapping crypto for crypto is a taxable event.
- Cost basis reporting begins January 1, 2026, with limitations.
- The IRS assumes zero cost basis if you have no records.
- Enforcement is increasing — protect yourself with good documentation.
Why Is This Happening Now?
Congress passed the Infrastructure Investment and Jobs Act in 2021. That law required new information reporting rules for digital assets under Section 6045.
The IRS released final regulations in July 2024. These rules are expected to generate $28 billion in additional tax revenue over the next decade.
The goal is simple. The IRS wants to close the gap between what taxpayers owe and what they report.
How Big Is the Reporting Problem?
A 2022 survey by Coin Ledger found that only 58% of crypto investors reported their holdings on their taxes. Another 31% admitted they did not report at all.
The IRS knows this. Their 2019 tax gap analysis showed that income with little third-party reporting has a 55% misreporting rate. When there’s strong reporting, like dividends, that rate drops to just 5%.
Form 1099-DA is designed to bring crypto reporting in line with stocks and bonds. The IRS estimates that 13 to 16 million taxpayers will receive at least one of these forms.
What Does Form 1099-DA Report?
For 2025 transactions, Form 1099-DA reports your gross proceeds from digital asset sales. It does not include your cost basis yet.
That changes on January 1, 2026 — just days away. After that date, brokers must also track and report cost basis. But there’s a catch.
Cost basis reporting only applies to assets held in a broker account from purchase to sale. If you move crypto to a personal wallet or another exchange, the broker doesn’t have to report cost basis.
What Transactions Are Taxable?
Many people believe swapping one cryptocurrency for another is not a taxable event. That’s wrong.
The IRS treats digital assets as property, not currency. Every sale, exchange, or trade trigger a potential tax obligation.
Mining Bitcoin? That’s an ordinary income. Getting paid in crypto? That’s income too. Even using crypto to buy goods or services counts as a taxable sale.
What Is the Wallet-by-Wallet Rule?
Before 2025, some taxpayers used the “universal method.” They picked up the most favorable cost basis across all their wallets and exchanges.
The IRS ended that practice in Revenue Procedure 2024-28. Now you must calculate gains and losses on a wallet-by-wallet or account-by-account basis.
The deadline to transition to this method was January 1, 2025. If you missed it, limited exceptions may still apply.
What Happens If You Don’t Keep Records?
This is where things get serious. The IRS now contracts with software providers to trace unreported crypto income.
If the IRS audits you and you can’t prove your cost basis, they assume it’s zero. That means your entire sale amount could be treated as a taxable gain.
IRS Criminal Investigation reported an 113% increase in digital asset cases between 2018 and 2023. Enforcement is ramping up fast.
How Can You Protect Yourself?
Good recordkeeping is your best defense. Track every purchase, sale, swap, and transfer. Note the date, amount, and fair market value at the time.
Consider using crypto tax software that offers SOC (System and Organization Controls) reports. These tools help you maintain audit-ready records.
Also, make sure your tax preparer asks the right questions. The IRS requires a digital asset question on Form 1040. Your CPA should be asking it too.
What Should Business Owners Know?
If your business accepts crypto payments, you have additional reporting duties. Each transaction is treated as a sale of property.
You must track the fair market value at the time of receipt. That becomes your income. If you later sell or convert the crypto, you may owe capital gains tax.
Businesses that pay employees or contractors in crypto must also issue the appropriate tax forms. Noncompliance can lead to penalties.
How Virtue CPAs Can Help
Digital asset taxes are confusing. The rules keep changing, and the stakes are high. That’s where we come in.
At Virtue CPAs, we help individuals and businesses navigate crypto tax reporting. From recordkeeping to IRS compliance, our team stays ahead of the latest updates.
Don’t wait until you receive a Form 1099-DA to get organized. Schedule a consultation With Virtue CPAs today and take control of your digital asset tax strategy.
