If you sold cryptocurrency through an exchange in 2025, the IRS may already have data about you. The new Form 1099-DA, introduced this year, requires exchanges and brokers to report every sale of digital assets to the tax authority. But there's a catch: the cost basis calculation IRS uses may differ from yours. Let's break it down.
What is Form 1099-DA and why it matters
Form 1099-DA is the crypto equivalent of 1099-B. Exchanges must file it with the IRS for every sale, exchange, or other taxable event. The form includes the sale amount, date, and, importantly, the cost basis — the original value of the asset. This is where discrepancies often arise.
Why IRS's math may not match yours
Exchanges use accounting methods that may differ from yours. For example, you might use FIFO (first in, first out), while the exchange uses average cost. Or you transferred coins between wallets and exchanges — in that case, the exchange doesn't know the actual cost basis and may report zero or an estimate. The IRS sees a number, but it may be incorrect.
How it affects your taxes
If the data in 1099-DA doesn't match your tax return, the IRS may ask for clarification or assess additional tax. That doesn't mean you're automatically a violator, but it's better to be prepared. This is especially relevant for active traders or those using DeFi platforms where reporting isn't even required.
What crypto holders should do
- Reconcile data. Obtain 1099-DA forms from all exchanges and compare with your own records.
- Check accounting method. Ensure you use the same method (FIFO, LIFO, average) as the exchange, or be ready to explain the difference.
- Keep your transaction history. If you moved assets between wallets, save confirmations — this helps reconstruct the basis.
- Consult a tax professional. Especially if you have complex operations or large amounts.
FAQ
Is an exchange required to send 1099-DA if I just hold crypto?
No, the form is only filed for taxable events: sale, exchange, or use for payment.
What if I don't receive 1099-DA but sold crypto?
That doesn't exempt you from taxes. You must report income yourself.
Can the IRS penalize for data mismatches?
Yes, if the discrepancy is significant and you don't provide explanations. Better to file a correct return upfront.
How does this relate to virtual cards?
If you use crypto cards for payments, each transaction may be a taxable event. Consider this when planning expenses.
Where to learn more?
Official IRS instructions for Form 1099-DA are available at irs.gov.
This material is for informational purposes only and does not constitute financial or tax advice. Consult a professional.
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