The crypto industry is maturing, and the IRS wants investors to do the same. Starting in 2025, Form 1099-DA will require brokers to report detailed crypto sales and exchange transactions directly to the IRS. But there’s a catch: this form only reflects broker platform activity. Assets moved across wallets, traded on DeFi protocols, or held in cold storage? Not on the radar. For investors with diverse digital holdings, this means the IRS may see only part of the picture, and that’s where trouble begins.
The Compliance Gaps That 1099-DA Leaves Behind
Despite its name, Form 1099-DA doesn’t capture:
- Wallet transfers
- DeFi interactions
- Cross-platform activity
This incomplete snapshot can lead to:
- Inflated taxable gains
- Missing cost basis data
- Audit triggers and penalty risk
- The End of Pooled Accounting
Until now, many investors tracked digital asset basis using the Universal Wallet Method — pooling cost basis across platforms for simplicity. But under Rev. Proc. 2024-28, that method is no longer permitted. Taxpayers must now track basis per wallet or exchange, dramatically increasing the complexity of compliance. Here’s the silver lining: Rev. Proc. 2024-28 also introduces Specific Identification (SpecID), which lets you strategically choose which tax lots to sell. This opens the door to techniques like:
- HIFO (Highest In, First Out) — Reduce gains by selling highest-cost units first
- Best Tax — Prioritize tax lots to optimize short- and long-term losses and gains
- Paired with accurate wallet-level tracking, these strategies can yield substantial tax savings.
Gain Control Over Your Digital Asset Taxes
With the IRS Form 1099DA December 31 deadline fast approaching, now is the time to ensure your crypto reporting is accurate and complete. Withum’s crypto-savy team can help you stay compliant and optimize your tax position.
Why Traditional Tracking Falls Short
Modern investors navigate a crypto landscape that includes:
- NFTs, staking, airdrops, and DeFi trades
- Multiple wallets and exchanges
- Frequent portfolio changes
- Evolving IRS rules and increased audits
Tax software and broker statements alone aren’t built for this level of fragmentation. That’s where our new service makes the difference. We designed our solution from the ground up to meet these new standards — not patch outdated processes. Here’s what we deliver:
- Wallet-by-wallet tracking
- SpecID-compatible reporting
- Audit-resistant documentation
- Strategic tax optimization tools
The IRS now expects crypto tax reporting to mirror traditional finance in rigor and transparency. Our service bridges the innovation of digital assets with the regulation they now face – empowering clients to stay compliant, minimize liability, and invest with confidence.
Author: Rhett Chrystal, MBA | [email protected]
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For more information on this topic, please contact a member of Withum’s Digital Currency and Blockchain Technology Services Team.
