Form 1099-DA: A New Era of Crypto Taxation
The IRS has introduced Form 1099-DA to track digital asset transactions reported by brokers and exchanges. This new form captures details about your cryptocurrency sales, including the date you bought the crypto, the date you sold it, the proceeds from the sale, and the cost basis.
The cost basis is critical because it determines your taxable gain or loss. If you sell an asset for $5,000 and your cost basis is $2,000, your taxable gain is $3,000. However, if the exchange reports a zero cost basis or uses the transfer price instead of your actual acquisition price, this creates an inflated gain.
Cost basis errors can be costly. The IRS has a copy of Form 1099-DA with potentially incorrect information. If you file your tax return with different numbers than what the IRS received, the agency will flag the discrepancy. You may receive a notice demanding payment on the higher gain, plus interest and penalties.
To avoid these issues, gather all transaction records from every exchange and wallet where you held or traded crypto. Reconcile your wallets and exchanges to identify discrepancies between what exchanges reported and what actually occurred.