With 2026 on the horizon, crypto investors are facing a new landscape for tax filing compared to previous years. This outlines ten essential points to consider, featuring insights from two leading experts in digital asset taxation. As we approach the New Year, it’s evident that the upcoming tax filing season could present significant challenges. Without adequate planning and the guidance of tax professionals well-versed in digital assets, taxpayers may find themselves navigating a complex landscape. If you’ve realized gains from a blue-chip token or faced losses from a memecoin that didn’t perform as expected, now is the moment to consider actionable strategies that can help you save money and maintain compliance with the IRS in 2026—always in consultation with a knowledgeable tax professional who specializes in cryptocurrency. Here’s a top-ten checklist of ideas and warning signs—information only, not tax advice—to assist you in preparing for Form 1099-DA, wallet-by-wallet accounting, and a significantly more data-driven IRS. Form 1099-DA is the latest IRS requirement for brokers, particularly centralized exchanges, to report your digital-asset sales and specific other disposals beginning with activities in 2025. This form will first be sent out during the 2026 filing season. In 2025, the reporting requirements for brokers will change significantly. They will only need to disclose the gross proceeds from crypto sales, leaving out the original cost basis. This means that the IRS may view these substantial sale figures without any context for the cost basis, potentially assuming it to be zero unless your tax return explicitly clarifies otherwise. Sharon Yip states that the new Form 1099-DA is a game-changer. “Once Form 1099-DA goes out, there’s nowhere to run, nowhere to hide, because exchanges are going to expose all your trades to the IRS,” stated Yip. Yip further cautioned that, “The IRS computer will see, for example, that a taxpayer has one million dollars of sales and a 1099-DA with no basis, and it will treat the basis as zero.” “If it cannot match what you report on your return, it’s going to send a notice automatically.”
Jamison Sites specializes in serving clients with digital asset exposure. “Don’t be scared by large numbers being reported, the number on the Form 1099-DA is not taxable income,” says Sites.”Many exchanges are working on rolling out features to allow users to report their basis which will make the Form 1099-DA reporting more accurate to taxable income in future years,” said Sites. Up until now, the majority of crypto tax tools have employed a “universal pool” method, which assumes that all your coins reside in a single large bucket, regardless of whether they are distributed across various exchanges or stored in self-custody. In this scenario, an individual could sell a recently acquired, high-value bitcoin on a prominent U.S. exchange and pair it with an older, less expensive one that remained untouched in a hardware wallet—this method simplifies the calculations, yet it severs the connection between the cost basis and the actual whereabouts of the assets. Starting in 2025, the IRS will mandate that taxpayers monitor the cost basis of their digital assets individually for each wallet or exchange. In practice, this indicates that each account operates as its own ledger, and when you sell crypto, you can only utilize tax lots that are genuinely held in that particular wallet or exchange. “This has been a point of confusion for many taxpayers, including ‘sophisticated taxpayers’.” The Treasury characterizes a wallet as ‘a means of storing, electronically or otherwise, a user’s private keys to digital assets held by or for the user.’ “So, a ‘wallet’ does not appear to be as granular as each digital asset address used,” explained Sites. In a perfect world, Sites elaborates that the tracking system in use would enable users to consolidate their digital asset addresses into grouped ‘wallets’ for monitoring purposes.
Transitioning from universal pooling to wallet-by-wallet accounting is not merely a matter of adjusting a software setting; it requires a comprehensive, one-time project to reconstruct your historical data. Starting January 1, 2025, it will be essential to maintain a detailed record of the coins—or tax lots—held in each wallet or exchange. It all begins with data collection: download comprehensive transaction histories from every exchange, wallet, and DeFi platform you’ve utilized, encompassing all years of activity. These records enable you to accurately categorize transfers as non-taxable movements, preventing the error of misreporting them as new purchases or sales. Revenue Procedure 2024-28 introduced a transitional safe harbor allowing eligible taxpayers to make reasonable allocations of unused basis across wallets or accounts, albeit with stringent timing and specific conditions attached. “The IRS did provide a safe harbor, but I’m not sure how many crypto investors have actually fulfilled the requirements to qualify,” stated Yip. Reports indicate that, “Much of this documentation needed to be done last year in order to qualify for the Safe Harbor provided in Rev. Proc. 2024-28; however Treasury didn’t provide much time for your average individual taxpayer to comply. Adhering to the guidance outlined in Rev. Proc. 2024-28 remains a prudent approach, even if it is done after the deadline. “When a taxpayer is proactive with their documentation and acts in good faith the IRS may be lenient with regard to safe harbor enforcement,” said Sites.
For those who have exclusively traded on a single major U.S. exchange, the situation remains complex yet more straightforward. This platform generally maintains your complete transaction history, is capable of producing gain/loss reports, and will issue a singular Form 1099-DA for your reconciliation needs. Your primary responsibilities include ensuring that your return aligns with the provided data, downloading and keeping comprehensive reports, and addressing any discrepancies before the IRS intervenes. However, ‘power users’—those engaging with multiple exchanges, utilizing self-custody wallets, holding DeFi positions, and possibly managing offshore accounts—encounter a more fragmented landscape. “For individuals managing multiple accounts, it becomes unfeasible for a single exchange to accurately ascertain the cost basis for each transaction, as the exchange loses visibility whenever coins are transferred in or out,” stated Yip. Every U.S. broker is set to issue its own 1099-DA, while certain foreign platforms and on-chain wallets may not provide any documentation. Consequently, these investors are tasked with aggregating all their data into crypto tax software, meticulously tagging transfers, and reconciling their wallet-by-wallet calculations with every form that the IRS will review. “Most consumers will not know the correct cost basis, because after so many different activities across many different accounts, especially DeFi, all the cost basis is just mixed together,” said Yip. Tax preparers continue to express caution regarding intricate crypto returns, especially in scenarios involving multiple exchanges, DeFi protocols, and the evolving landscape of 1099-DA reporting. Numerous traditional firms either reject digital-asset clients or restrict themselves to simple cases, as they do not possess the necessary tools and expertise to navigate on-chain activity, analyze wallet-by-wallet cost basis, and address conflicting broker forms. For power users, delaying their search for assistance until February or March 2026 significantly increases the chances of encountering a “we’re full” response from the firms that are most capable of addressing intricate crypto challenges. “You certainly don’t want to wait until the last minute to calculate your crypto-related taxable income… Simply handing over your wallet addresses is akin to dumping a box of receipts on your accountant’s desk,” said Sites. Yip states that true crypto tax accountants are indeed a rare breed. “At this point, I would say 90-something percent, probably close to 99% of tax preparers, have no clue how to do this kind of crypto reconciliation.” Yip noted that during a three-day AICPA Digital CPA conference she attended, “every firm owner I asked basically said they do not accept crypto clients. That’s their solution.”
Exercise caution with the wash-sale gap Under current law, the wash-sale rule is applicable to stocks and securities, but it does not extend to property like most cryptocurrencies. This distinction allows many investors to harvest losses by selling at a loss and quickly repurchasing without the automatic loss of the deduction. However, this gap is not a free-for-all, as the IRS retains the ability to invoke the economic-substance doctrine to contest transactions that do not reflect genuine economic change or seem solely aimed at producing tax benefits without any significant market risk. “The IRS can certainly try to apply the economic-substance doctrine to disallow aggressive year-end loss-harvesting, but it will be very difficult for them to do so,” says Yip. Several recent legislative proposals are set to explicitly extend wash-sale or similar anti-abuse rules to digital assets, with some designed to take effect relatively quickly after enactment. “With the way the market moved this year, we’re seeing significant interest in this strategy.” A genuine sale is crucial, especially when it comes to navigating the fluctuations of market prices. “Many legislative proposals would include digital assets in the wash sale rules, so 2025 may be the last time taxpayers can take advantage of this benefit,” said Sites. Lawmakers have consistently put forward de minimis exemptions aimed at easing the burden of capital-gains tracking on small crypto transactions—usually those under approximately $200 or $300 each, occasionally with an annual limit—so that users aren’t required to document every coffee purchase or ride share. None of these measures has been enacted into law, and according to existing regulations, a purchase funded by cryptocurrency is classified as a taxable disposition of property, followed by a conversion into fiat currency. Yip states, “I can see why the de minimis exception [has] failed to pass.” “It’s going to be very difficult to enforce if they allow that.” On-the-ground enforcement presents genuine challenges, as a minor card payment and a speculative micro-trade can appear indistinguishable at the transaction-data level. Requesting platforms to identify every small disposal introduces risks of operational complexity and potential loopholes for exploiting the threshold. “A de minimis exception would significantly benefit the digital asset industry while having a negligible effect on government tax revenue. “But, this is not the current law and even if it passes it may prove hard to track in practice,” said Sites.
Some retirement plan providers are now including Bitcoin and Ether spot ETFs in their 401(k) offerings, allowing workers to gain exposure to cryptocurrencies within traditional retirement accounts that adhere to standard tax regulations for gains and income. Yip notes that direct token holdings within employer-sponsored 401(k)s remain rare, largely due to lingering uncertainties regarding custody, valuation, and fiduciary responsibilities under ERISA, which lead plan sponsors to exercise caution. Consequently, the majority of individuals seeking direct coin exposure within a tax-advantaged account continue to opt for self-directed IRAs. “Many people, including myself, are utilizing self-directed IRA accounts. “With a self-directed IRA you can invest directly in crypto assets and you are fully responsible for the result,” says Yip. The Department of Labor has reversed its earlier guidance from 2025 that had advised fiduciaries against incorporating cryptocurrency options into 401(k) retirement plans. As plan sponsors gradually adjust their comfort levels, we may see a slow expansion of options. However, any progress is expected to be incremental and under careful scrutiny. “Traditional financial institutions are actively exploring the addition of digital assets to their product offerings.” The rollout into the various account types is heavily regulated. “I do expect to see more digital asset availability but the progress may be slow as it takes time to update the web of regulations,” said Sites. The standard crypto loan process involves transferring tokens, receiving a non-transferable IOU, and subsequently getting the same tokens back along with interest. This arrangement typically does not incur tax at the initial transfer of tokens; instead, tax is recognized on the interest earned over time. However, numerous DeFi protocols issue tradable LP or “receipt” tokens that can be sold, staked, or rehypothecated, which can make the initial step appear more like a taxable swap into a new asset than merely a straightforward loan. The industry has long urged the Treasury and the IRS to provide clarity on the taxation of these structures. While future reforms may be on the horizon, a universal rule remains elusive; each protocol’s terms and economics require individual analysis. “The digital asset industry has been seeking Treasury guidance on this matter for many years.
The terms and economics of each loan matter significantly; sometimes, a single sentence in a multi-page loan agreement (including terms of service on platforms) can result in a transaction that was intended to be a loan resulting in a taxable sale,” said Sites. According to Sites, investors must recognize that digital assets do not inherently enjoy the same tax treatment as securities, and even ‘simple’ loans may Crypto prices can vary significantly between exchanges, and tokens or NFTs with low trading volumes can pose particular challenges when it comes to valuation that meets IRS standards. According to existing regulations, any crypto gifts exceeding 5,000 dollars necessitate a qualified appraisal conducted by an individual who adheres to stringent IRS criteria. Merely providing exchange price screenshots will not suffice when seeking substantial charitable deductions. Senator Cynthia Lummis has put forth a legislative proposal aimed at exempting actively traded digital assets from the qualified-appraisal requirement. This move seeks to align these assets more closely with publicly traded securities, thereby reducing friction for donors. However, it is important to note that this proposal has not yet been enacted into law. “It’s important to note that this qualified appraisal needs to be completed before the donation; the IRS has historically been very strict on this point.” “Senator Lummis has introduced legislation to address this issue and make it easier to donate actively traded digital assets,” said Sites. Form 1099-DA, wallet-by-wallet rules, and new safe-harbor and legislative proposals position 2025 as a pivotal year that will resonate throughout the 2026 filing season for those engaged in crypto. “It’s going to be a huge mess this year, which is actually 2026 for 2025 returns, unless both taxpayers and tax professionals start preparing now,” states Yip. Proactive planning, meticulous record-keeping, and early collaboration with a tax professional knowledgeable in cryptocurrency are essential for staying ahead of IRS expectations, rather than merely responding to notices when they arrive.