US crypto investors face increasing complexity in tax reporting due to expanding rules. The IRS has begun receiving gross proceeds from digital asset dispositions on Form 1099-DA for the 2025 tax year, with basis reporting for covered assets starting with 2026 transactions.
Tax Reporting Challenges
For investors with simple portfolios, downloading a CSV from an exchange and sending it to tax software may still work. However, those with more complex portfolios, including self-custody, staking, DeFi, NFTs, or transfers among several exchanges, need to rebuild their accurate transaction history.
A centralized exchange can only record activity within its system, leaving out details such as original purchase dates, acquisition costs, and staking history. On-chain records are public but not tax-ready, requiring investors to explain their intent and label each event for federal returns.
DeFi and NFT Recordkeeping
DeFi interactions can produce multiple transactions, including deposits, receipt tokens, reward tokens, fees, and withdrawals. Staking adds another layer, with IRS Revenue Ruling 2023-14 treating staking rewards as income when a cash-method taxpayer has dominion and control over them. NFT activity also creates recordkeeping problems, with mints involving purchase prices, gas paid in crypto, and later sales on different marketplaces.
Portfolio-Wide Recordkeeping
The final digital asset basis regulations require taxpayers to identify basis on a wallet-by-wallet or account-by-account basis starting in 2025. This change makes portfolio-wide recordkeeping more important, as investors can no longer assume a universal pool of basis will produce the correct answer across every location.
Accurate Tax Preparation
Accurate tax preparation begins with collecting exchange files, wallet addresses, and income records, then building one timeline across the portfolio. Transfers need to be paired, duplicate entries removed, and missing basis traced to original acquisitions. DeFi and NFT activity requires transaction-level classification, and software can be valuable for calculation and scale, but its output depends on the inputs and labels it receives.
