Crypto Tax Reporting: Investors Face Challenges Amid New IRS Rules
The implementation of new IRS rules for cryptocurrency reporting has introduced a complex layer to tax filings for investors in the United States. Brokers are now required to disclose gross proceeds from certain digital asset sales, but crucially, they do not report the cost basis—essentially the amount originally paid for those assets. This disconnect is turning tax time into a significant headache for many crypto traders.
A recent survey by Awaken Tax sampled 1,000 U.S. crypto investors, revealing that 21% of respondents waiting for documents needed to file their 2025 taxes had yet to receive information from their exchange or platform. Furthermore, 20% expressed concerns over the completeness or accuracy of the 1099-DA forms they received, which are used to report digital asset transactions.
This year has marked the first tax season under the new guidelines, and for those who filed for extensions, the deadline is looming—October 15. Brokers are now required to report only how much an asset was sold for, leaving taxpayers responsible for determining their own gains and losses, a task that can be daunting and time-consuming, especially for frequent traders.
Unraveling the Numbers
As Chris Herbst, managing director at CountDeFi tax reporting, points out, the lack of cost basis reporting means actual gains can appear significantly inflated for active traders. For example, an asset sold for $10,000 might not reveal a purchase price of $9,000, resulting in an apparent gain of $1,000 that overlooks the essential context of the transaction.
For straightforward transactions, calculating gains can be simple. However, the lack of basis data on the 1099-DA complicates matters. Taxpayers must rely on their own records, which can become intricate, particularly when investments span multiple platforms and wallets. “The gap is real,” Herbst elaborates, indicating that both taxpayers and exchanges bear responsibility for maintaining accurate records.
Inconsistencies in Reports
Tax professionals, like Sharon Yip from Crypto Tax Advisors, have reported discrepancies between client-provided transaction histories and the 1099 forms issued by exchanges. Yip explains that some clients received forms that didn't reflect all their trades in 2025, and variations in reporting styles among exchanges only add to the complexity. For example, some exchanges disclosed cost basis for certain trades but not for others, leading to further confusion during tax reconciliation.
The timing of receiving these crucial documents has also been a source of frustration, as noted by Andrew Duca, founder of Awaken Tax. Many taxpayers received their 1099-DA forms late in the filing season, leaving little time to file accurately. Duca highlights cases where platforms like Kraken failed to provide any form information until just weeks before the filing deadline, making compliance nearly impossible for some traders.
The Challenge of Record-Keeping
While the IRS requires taxpayers to report gains from digital assets, the absence of definitive records from exchanges places a heavy burden on individuals to reconstruct their transaction histories. For instance, if an investor buys Bitcoin on one exchange, transfers it to a private wallet, and then sells it on another platform, vital information regarding the asset’s acquisition may be entirely missing, complicating the tax calculation process.
Tax expert Gordon warns that the lack of standardized reporting means that many software solutions for tracking cryptocurrency transactions struggle to integrate or reconcile 1099-DA information, requiring users to manually input data—an arduous task for active traders who may have hundreds of transactions.
Looking Ahead
Taxpayers must diligently compare their 1099-DA figures against their own records to avoid discrepancies when filing. While the IRS has improved oversight on crypto trading, the transition toward streamlined reporting isn’t complete. Starting in 2026, brokers will be expected to report the cost basis for covered digital assets, potentially alleviating some of the confusion moving forward. However, assets transferred between exchanges may still fall outside of these requirements.
While the IRS may have enhanced visibility into crypto transactions, taxpayers will still need to maintain meticulous records. The current tax season underscores the significance of thorough record-keeping, as clarity and accuracy on personal transaction histories remain paramount for navigating the complexities of crypto taxation.
In short, the increased IRS scrutiny doesn't eliminate the need for diligent record-keeping by traders. Moving forward, investors will have to balance compliance with evolving regulations while striving to ensure their tax reports are both accurate and reflective of their actual trading activities.
