5 Mistakes Crypto Investors Make Filing After the 1099-DA Rollout
Sam's List Editorial | 2026-06-06
5 Mistakes Crypto Investors Make Filing After the 1099-DA Rollout The IRS now has data from every major exchange. Under the final broker reporting regulations (T.D. 10000, issued June 2024), Form 1099-DA reports your gross proceeds starting with the 2025 tax year — and for assets acquired on or after January 1, 2026, brokers must report your cost basis too. The agency doesn't just know you traded. Increasingly, it knows what you paid. That's a fundamentally different compliance environment than anything that existed before. And most crypto investors are filing like it's still 2022. Here are the five mistakes that will get you flagged. 1. Treating IRS Form 1099-DA as a Complete Record of Your Activity It isn't. A 1099-DA covers on-exchange transactions only — buys, sells, and conversions that happened through a regulated broker. Everything else is invisible to it. DeFi trades, wallet-to-wallet transfers, staking rewards, liquidity pool activity, NFT transactions, and any off-exchange activity won't appear on your 1099-DA. But the IRS will see whatever does appear and match it against your return. If your return shows only what's on the 1099-DA and you had significant off-exchange activity, the gap shows up immediately. The scenario that creates real problems: an investor receives a 1099-DA showing $80,000 in proceeds from exchange sales, files based on that, and doesn't mention the $40,000 in DeFi gains that happened in a separate wallet. The IRS doesn't see the DeFi gains — but it does see the exchange gains, compare them to the return, and if the numbers don't reconcile cleanly, questions follow. Don't treat the form as the finish line. Treat it as one input among several. 2. Defaulting to FIFO Instead of Optimizing Crypto Cost Basis Reporting Under the per-wallet cost basis rules in IRS Revenue Procedure 2024-28, investors can use specific identification to choose which lot they're selling from. Most people don't bother — they accept the default (which is often FIFO) and may pay more tax than they have to. Here's why it matters. If you bought 1 ETH at $1,000 in 2020, another at $3,500 in 2021, and another at $1,800 in 2023 — and you're selling one in 2026 when ETH is at $4,000 — your gain depends entirely on which lot you designate. FIFO picks the $1,000 lot and creates a $3,000 gain. Specific identification lets you pick the $3,500 lot and recognize a $500 gain instead. On a large portfolio, this decision can be worth real money — though the right lot depends on your holding periods, bracket, and broader tax picture. And there's a hard rule: you have...
