Cryptocurrency Tax Guide 2025: What You Need to Know About IRS Rules, Forms, and Reporting

If you bought, sold, traded, mined, or staked cryptocurrency in 2024, the IRS already knows. Starting January 1, 2025, every major U.S. exchange like Coinbase, Kraken, and Binance.US is legally required to report your crypto activity to the IRS using a brand-new form: Form 1099-DA. This isn’t just a paperwork change-it’s a full enforcement shift. The days of guessing whether you owe taxes on your crypto are over. If you didn’t track your transactions, you’re at risk of an audit, penalties, or worse.

How the IRS Taxes Cryptocurrency

The IRS treats cryptocurrency as property, not currency. That means every time you sell, trade, or spend crypto, it’s a taxable event. It doesn’t matter if you traded Bitcoin for Ethereum, bought a coffee with Dogecoin, or swapped your Solana for a new memecoin. Each swap triggers a capital gain or loss.

There are three ways crypto gets taxed:

• Ordinary income tax: This applies when you earn crypto as income-like from mining, staking rewards, airdrops, or salary payments. You pay tax at your regular income rate (10% to 37%) based on the fair market value of the crypto when you received it.
• Short-term capital gains: If you hold crypto for 365 days or less before selling or trading it, any profit is taxed as ordinary income. Same rates as above.
• Long-term capital gains: If you hold crypto for 366 days or more, profits are taxed at lower rates: 0%, 15%, or 20%, depending on your total income.

For example, if you bought 0.5 BTC for $20,000 in March 2023 and sold it for $35,000 in April 2025, you made a $15,000 profit. Since you held it over a year, you’d pay long-term capital gains tax. If you’re single and made $80,000 total in 2024, your long-term gain rate is 15%-so you owe $2,250 on that trade.

Form 1099-DA: What It Is and What It’s Not

This is the biggest change in crypto taxes for 2025. Form 1099-DA is now the standard for reporting crypto sales and exchanges, just like Form 1099-B for stocks. Centralized exchanges like Coinbase must send this form to you and the IRS by January 31, 2026, for all trades made in 2025.

Here’s the catch: Form 1099-DA only reports gross proceeds-the total amount you sold crypto for. It does NOT include your original purchase price (cost basis). That means you still have to calculate your profit or loss yourself.

Cost basis reporting won’t be required until January 1, 2026. So for your 2025 taxes (filed in 2026), you’re on your own to track what you paid for each coin. If you bought Bitcoin in 2021, 2022, and 2024, you need to know the price and date of each purchase to figure out your gain.

And here’s another problem: if you transferred crypto between your own wallets-say from Coinbase to Kraken-the exchange may still report it as a sale. That’s because the system sees it as a withdrawal and then a deposit elsewhere. You’ll need to document that it was a personal transfer, not a sale, or you’ll pay tax on money you didn’t actually make.

What You Must Track

To file correctly, you need records for every single crypto transaction in 2024:

• Date and time of each buy, sell, trade, or transfer
• Amount and type of crypto involved
• Value in USD at the time of the transaction (based on a reputable exchange rate)
• Cost basis for each asset you sold or traded
• Proof of transfers between your own wallets (screenshots, wallet addresses, transaction IDs)
• Details of any mining, staking, or airdrop income

Most people don’t realize how many transactions they had. One Reddit user tracked 147 crypto transactions in 2024-each one needed to be logged. If you used multiple wallets or platforms, this gets messy fast.

Decentralized Exchanges (DEXs) and DeFi Are Still a Gray Zone

Form 1099-DA only applies to centralized exchanges. That means if you used Uniswap, SushiSwap, or a DeFi protocol like Aave or Curve, you won’t get a 1099-DA. But you still owe taxes.

Every time you swap tokens on Uniswap, you’re triggering a taxable event. When you provide liquidity to a pool, you’re earning income. When you earn yield from staking on a DeFi platform, that’s ordinary income. The IRS doesn’t care if it’s decentralized-you still have to report it.

But here’s the problem: DeFi platforms don’t report to the IRS. You’re 100% responsible for tracking every swap, deposit, withdrawal, and reward. Tools like Koinly or CoinTracker can help, but they’re not perfect. As of April 2025, users reported that CoinTracker still couldn’t handle concentrated liquidity positions on Uniswap v3 correctly. If you’re active in DeFi, you might need a CPA who specializes in crypto.

How to Calculate Your Gains (FIFO vs. Specific Identification)

When you sell crypto, you need to figure out which coins you’re selling. The IRS defaults to First-In, First-Out (FIFO). That means the first coins you bought are the first ones you’re considered to have sold.

For example:

• Jan 15, 2023: Bought 1 BTC for $25,000
• June 10, 2024: Bought 1 BTC for $40,000
• March 5, 2025: Sold 1 BTC for $50,000

Under FIFO, the IRS assumes you sold the first BTC you bought for $25,000. So your gain is $25,000. But if you’d used specific identification (and documented it properly), you could have chosen to sell the $40,000 BTC instead, cutting your gain to $10,000.

But here’s the rule: you must document your choice before the sale. You can’t just say later, “I meant to sell the expensive one.” You need to tell your tax software or CPA which coins you’re selling at the time of the trade.

The American Institute of CPAs (AICPA) confirmed in February 2025 that FIFO is the default unless you prove otherwise. That’s why keeping detailed records is non-negotiable.

Common Mistakes That Trigger Audits

The IRS is now matching every Form 1099-DA with your tax return. If you report $10,000 in crypto sales but the exchange says $50,000, you’ll get a letter. Here are the top mistakes people make:

• Ignoring transfers between wallets as taxable events
• Forgetting to report staking or airdrop income
• Not tracking cost basis for older coins
• Using average cost instead of FIFO or specific identification
• Assuming DeFi activity isn’t taxable
• Not filing Form 8949 and Schedule D

According to TurboTax’s analysis of 2.3 million 2025 returns, taxpayers who used three or more platforms had a 42% higher error rate. If you used Coinbase, Kraken, and MetaMask, you’re at high risk.

What to Do If You Made Mistakes

If you didn’t file crypto taxes in past years or you underreported, you can fix it. The IRS has a voluntary disclosure program. You can file amended returns (Form 1040-X) for the last three years and pay what you owe, plus interest. You’ll still get a penalty, but it’s much smaller than if the IRS finds you first.

For 2025, the IRS has started sending out “soft letters” to crypto users who didn’t report. These aren’t audits-but they’re warnings. If you get one, don’t ignore it. Get help.

Tools and Resources

You don’t have to do this alone. Here are the best tools and resources:

• TurboTax Crypto: Integrates directly with Coinbase, Kraken, and Binance.US. Best for simple traders.
• Koinly: Handles DeFi, NFTs, and cross-chain swaps. Good for advanced users.
• CoinTracker: Strong reporting, but still has bugs with Uniswap v3.
• IRS.gov/crypto: Official guidance, updated weekly.
• AICPA Digital Asset Tax Resource Center: Free guides, examples, and FAQs.
• CPA with crypto experience: If you have more than 50 transactions or use DeFi, hire one. Average cost: $600-$1,200.

YouTube tutorials like Coffeezilla’s “Crypto Taxes 2025: Complete Walkthrough” (3.2 million views) are helpful, but don’t rely on them alone. Tax rules change fast.

What’s Coming in 2026 and Beyond

By January 1, 2026, all brokers must report cost basis on Form 1099-DA. That’ll make filing easier-but only if you use centralized exchanges.

By 2027, the IRS plans to expand Form 1099-DA to include staking rewards and yield farming income. That means even if you’re not selling, you’ll get a tax form for the crypto you earned.

There’s also a bill in Congress (H.R. 1839) that would force decentralized exchanges to report. But as of April 2025, it’s stuck in committee. Don’t count on it.

For now, the message is clear: the IRS is watching. And they’re not going away.