For most of crypto's history, tax reporting worked on the honor system: the IRS asked, and holders were trusted to self-report their gains and losses accurately. That system just ended. A new IRS form, 1099-DA, now requires crypto exchanges to report sale proceeds directly to tax authorities — and the specific way it's designed is leaving a lot of ordinary crypto holders more exposed than they realize.

What actually changed

Form 1099-DA — "Digital Asset Proceeds From Broker Transactions" — requires crypto exchanges like Coinbase to automatically report digital asset sales and exchanges to the IRS, the same way a traditional stock brokerage reports securities trades. This is a genuine structural shift, not just a paperwork update: previously, the IRS relied almost entirely on taxpayers to self-disclose crypto transactions, and now it has a direct, broker-reported data feed it can compare against whatever individual filers report on their own returns.

The gap nobody's talking about

Here's the catch that makes this more complicated than the equivalent stock-brokerage rule: exchanges are only required to report proceeds — what you sold an asset for — not cost basis, which is what you originally paid for it plus acquisition costs. Cost basis is the other half of the equation needed to calculate an actual taxable gain or loss, and for a lot of crypto holders, the exchange doing the reporting simply doesn't have that information. As Awaken Tax founder Andrew Duca put it, the rules are something of a blunt instrument that treats crypto like stocks despite very different underlying behavior.

Why exchanges genuinely can't fill in the missing piece

The reason isn't negligence — it's structural. Crypto moves freely between wallets and exchanges in a way stocks generally don't. Someone might buy Bitcoin on one platform, withdraw it to a personal cold-storage wallet, hold it there for years, and eventually deposit it on a completely different exchange to sell. That final exchange has no way of knowing what was originally paid, when, or where — it can only see the deposit and the eventual sale. Multiply that pattern across millions of holders who've moved coins between platforms at some point, and you get a systemic reporting gap that isn't any single exchange's fault but still lands squarely on individual taxpayers to resolve.

Who actually has to do the extra work

The burden of patching the missing cost-basis information falls on individual filers, who need to report their actual acquisition costs on the updated Form 8949 when filing. In practice, that means anyone who's held crypto for any meaningful length of time, moved it between platforms, or acquired it gradually over multiple purchases needs reasonably complete personal records — purchase dates, prices, and any fees — to avoid the IRS defaulting to treating the full sale proceeds as taxable gain simply because it has no cost-basis figure to net against. A poll of American crypto investors cited in reporting on the new rules found more than half feared exactly this kind of exposure to penalties.

Why it matters

This is a quiet but consequential shift in how crypto gets treated by the federal government: not a new tax rate, not a new type of taxable event, just automatic, broker-reported visibility into transactions that used to depend entirely on self-disclosure. For anyone who's been casual about tracking their own purchase history — buying gradually over time, moving assets between wallets, using multiple exchanges — this tax season is the first one where that casualness can translate directly into a larger tax bill or IRS scrutiny, not because anything about the crypto itself changed, but because the reporting infrastructure watching it finally caught up. The practical fix is unglamorous but straightforward: pull together purchase records now, before filing season pressure makes it harder, rather than discovering the gap for the first time when a return is already due.

Further reading

Frequently asked

Do I need to do anything differently this tax season because of this?

If you sold crypto through a U.S. exchange in the current tax year, yes — check that your own records of what you originally paid for each holding are complete and match what you'll need to report on Form 8949, since your exchange's 1099-DA will show what you sold for but not necessarily what you paid, especially for crypto that moved between wallets or exchanges before being sold.

Why can't exchanges just report the full gain or loss themselves?

Because they often don't know your actual cost basis. If you bought crypto on one platform, moved it to a cold-storage wallet, and later deposited it on a different exchange to sell, that second exchange has no way of knowing what you originally paid — it can only report what you sold it for, which is exactly the gap Form 1099-DA leaves for taxpayers to fill.

What happens if I don't reconcile the missing cost-basis information?

Without your own cost-basis records, the IRS may effectively treat your full sale proceeds as taxable gain, since it has no other figure to compare them against — a poll cited in the reporting found over half of crypto investors surveyed feared exactly this kind of penalty exposure under the new reporting regime.