Concerns Over Cryptocurrency Tax Documentation
A recent survey focusing on cryptocurrency investors in the United States has revealed significant concerns surrounding the accuracy of tax documentation, specifically the 1099-DA form. The investigation, conducted by Awaken Tax in August, indicates that approximately 20% of respondents who had either filed or intended to file an extension on their taxes were uncertain about the completeness of their 1099-DA forms or the alignment of these forms with their actual trading activities. Furthermore, an additional 21% of those surveyed reported that they had not yet received necessary information from exchanges or crypto platforms needed for their tax returns.
The Importance of the 1099-DA Form
This situation arises amidst the first tax season requiring the submission of the 1099-DA form, as mandated by the Internal Revenue Service (IRS). This form is crucial as it documents specific digital asset transactions that brokers must report, significantly impacting how taxpayers calculate their gains or losses as they prepare their tax returns for the year 2025. According to IRS requirements, brokers are obligated to report gross proceeds from certain transactions but are not required to disclose the original purchase prices, leaving taxpayers to bridge this critical gap themselves.
To illustrate, consider an investor who purchased Bitcoin for $9,000 and subsequently sold it for $10,000. Without the cost basis included on their 1099-DA, the taxpayer is expected to manually reconcile their records to establish the $1,000 gain.
Chris Herbst, a managing director at CountDeFi tax reporting, emphasized that the absence of cost basis information can inflate reported proceeds, complicating the tax filing process for active traders.
IRS Recommendations for Taxpayers
Taxpayers are encouraged by the IRS to utilize Form 1099-DA alongside their personal transaction records to accurately compute their basis before submission. This includes thorough documentation from various sources, particularly if assets were bought on one exchange, transferred via a private wallet, and sold on another platform. Herbst advised that a comprehensive trading history should encapsulate all relevant trades, fees, exchanges, and transaction identifiers, acknowledging that missing records could derail future calculations.
Previously, crypto.news reported that the deadline for brokers to furnish 2025 1099-DA forms is set for February 17, 2026, while reporting the cost basis remains optional for this inaugural submission. However, as the IRS has cautioned, many of these statements might necessitate taxpayers to independently calculate their basis.
Discrepancies and Challenges in Reporting
Sharon Yip of Crypto Tax Advisors noted discrepancies between her firm’s tax reports and the 1099-DA forms received by clients. Some trading activities, including extensive stablecoin transactions exceeding $300,000, were inadequately reflected on the forms. For example, one client’s exchange reported less than $100,000 in stablecoin proceeds despite much higher actual trading activity, necessitating a detailed comparison between 1099-DA and their transaction history to ensure accurate reporting.
Andrew Duca, founder of Awaken Tax, highlighted additional challenges faced by clients due to late issuance of forms, specifically citing Kraken, which delivered forms just two weeks before the April 15 tax deadline. This issue is compounded by instances of such forms lacking transaction data entirely, creating further difficulties for taxpayers as they endeavor to file accurately.
IRS Guidance and Future Implications
The IRS has provided options for taxpayers to request corrections from issuers for inaccurate forms. Despite this, the agency advises not to delay filing in the absence of a correction but instead utilize personal records to verify reported transactions accurately.
Duca urged careful assessment of any 1099-DA received against one’s complete transaction history, as discrepancies could lead to incorrect reporting of gains and losses, contrary to IRS expectations for accuracy. With many crypto tax software tools struggling to accommodate the new forms, Andrew Gordon from Digital Asset Tax Action called for brokers to facilitate easier data access through machine-readable formats to streamline the tax filing process for active traders.
Taxpayers granted an extension for filing their 2025 returns have until October 15 to submit documentation, ensuring they meet deadlines for any tax balances owed, which were originally due earlier in the tax year. The interest around crypto tax compliance has also caught Congressional attention, especially regarding transaction fees and the significant workload imposed on taxpayers due to routine trades and digital asset transfers. While the regulations governing 2025 tax filings remain unchanged, upcoming changes point toward stricter reporting guidelines for 2026 transactions, reinforcing the imperative for taxpayers to maintain thorough records to substantiate their reported gains and losses.
