Reporting Crypto Transactions: A 2025 Guide for Investors

Key Takeaways

• The IRS requires all taxpayers to answer a question about digital assets on Form 1040 in 2025.

• Reportable crypto transactions include selling, trading, spending crypto, receiving staking or mining rewards, and more.

• New IRS forms—especially Form 1099-DA—signal tighter broker reporting standards.

• Forms such as Form 8949, Form 1099-MISC, Form 1099-K, and Schedule D/1 are essential for accurate reporting.

• Keep detailed records of each transaction, including the date, value, cost basis, and the exchange or platform used.

• Crypto income from DeFi or foreign platforms must be reported, even if you don’t receive a 1099.

• Use crypto tax tools and/or work with a tax professional for accurate filing and compliance.

Why Reporting Crypto Transactions Matters in 2025

In recent years, the IRS has significantly increased enforcement efforts regarding crypto tax compliance. In 2025, every U.S. taxpayer must answer a digital asset disclosure question on Form 1040, indicating whether they received, sold, sent, or otherwise disposed of any digital assets during the tax year. This covers everything from popular cryptocurrencies like Bitcoin and Ethereum to NFTs and stablecoins.

The emergence of digital asset brokers, the introduction of Form 1099-DA, and expanded broker reporting requirements all signal one thing: ignoring your crypto tax responsibilities is no longer an option. Accurate reporting of cryptocurrency income and transactions is crucial for avoiding audits, tax penalties, or even charges of tax evasion.

What Is Considered a Crypto Transaction?

According to the IRS, cryptocurrency transactions aren't limited to selling coins on centralized exchanges. Reportable taxable events include selling crypto for fiat, trading one digital asset for another, using crypto to pay for goods or services, and receiving income through staking, airdrops, or mining. Even gifts or interest earned through DeFi platforms are also considered. Each of these taxable transactions can trigger tax implications—either as capital gains or ordinary income—depending on the nature and timing of the event.

Key IRS Forms for Reporting Crypto Transactions

Form 8949: Sales and Dispositions of Capital Assets

Form 8949 is used to report every taxable crypto event that involves the disposal of a digital asset. This includes selling crypto for fiat, trading tokens, or spending digital assets on purchases. You'll need to detail the date of acquisition and sale, cost basis (including fees), fair market value at the time of the transaction, and whether the resulting gain or loss is short- or long-term. All of this rolls up into Schedule D, which aggregates your overall capital gains and losses for the tax year.

Form 1099-DA: New Standard for Broker Reporting

Form 1099-DA, launching in 2025, marks a new era in crypto tax reporting for those who owe taxes. Digital asset brokers are now required to issue this form to users, which will summarize gross proceeds from crypto trades and, if available, the asset's cost basis. It's essential to compare the information on this form with your transaction data to identify any discrepancies that may require adjustments on Form 8949.

Form 1099-MISC: Income from Staking and Airdrops

If you’ve earned more than $600 through staking, airdrops, or other crypto income streams, you might receive a Form 1099-MISC. This form reports ordinary income and should be recorded on Schedule 1 of Form 1040. However, even if you don’t receive this form, you're still required to report income from all sources, including decentralized platforms and foreign entities.

Form 1099-K: High-Volume Crypto Payments

Form 1099-K is triggered when you exceed $20,000 in crypto payments and over 200 transactions through a third-party payment network. Unlike other crypto tax forms, it only reports gross proceeds, not your net gain or loss. It’s your responsibility to reconcile these amounts on Form 8949 using accurate records of each transaction’s cost basis and fair market value.

Understanding Capital Gains and Holding Periods

Your tax rate on crypto gains depends heavily on how long you've held the asset. If you hold a token for less than one year, any profits are taxed as short-term capital gains, which are treated as ordinary income. Assets held for more than a year qualify for long-term capital gains rates, typically ranging from 0% to 20%. Maintaining detailed records of your holding periods is crucial for accurately reporting capital gains and avoiding overpayment of capital gains tax.

Reporting Crypto Income Not Covered by Forms

Some types of cryptocurrency income may not be reported on standard IRS tax forms. This includes rewards from providing liquidity in DeFi, NFT royalties, yield farming returns, or earnings from non-custodial wallets. These are still taxable and need to be reported. Depending on your activity, this income may be reported on Schedule 1 or Schedule C if it is considered self-employment income.

If you're an independent contractor earning crypto, that income is subject to self-employment taxes. Understanding how to distinguish between other income and self-employment income is essential for accurately reporting crypto income.

Real-Life Example: How to Report a Crypto Year

This illustrates how easily taxable crypto transactions can accumulate, making tools and record-keeping essential.

Imagine a user named Alex who did the following in 2025:

• Bought 1 ETH in January for $2,000

• Sold it in September for $2,800 (capital asset transaction)

• Earned $500 in staking rewards (ordinary income)

• Swapped SOL for ADA (taxable event)

• Received a 1099-DA and a 1099-MISC

Alex must:

• Use Form 8949 to report the ETH sale and SOL/ADA trade, including cost basis and fair market value

• Report $500 of crypto income on Schedule 1 as ordinary income

• Cross-check 1099 forms with their transaction records

• Use crypto tax software to calculate gains and losses

Crypto Tax Software: Tools That Help

Crypto tax software can help calculate gains or losses, generate tax forms, and streamline tax reporting. Popular tools include:

• CoinLedger – Ideal for users looking to import from multiple exchanges

• Koinly – Known for its clean interface and support for DeFi and NFTs

• TokenTax – Offers hands-on help with more complex portfolios

• ZenLedger – Excellent for tax professionals and accountants managing many clients

These tools help ensure accurate reporting, track the cost basis, and simplify the process of filing crypto taxes.

Avoiding IRS Red Flags and Audit Triggers

To stay compliant and lower audit risk, avoid these common mistakes:

• Failing to report all wallet activity

• Forgetting about older wallets or dust tokens

• Not adjusting for fair market value properly

• Using inconsistent cost basis methods across exchanges

Inaccuracies in your tax return or unreported gains and losses from digital assets can result in a surprise tax bill or worse—an IRS audit. A good tax professional can help you navigate these complexities and provide sound tax advice.

Best Practices for Crypto Tax Reporting

To stay on top of your crypto taxes:

• Use crypto tax software to automate calculations and generate forms

• Maintain detailed records of all crypto activity

• Review every 1099 form and reconcile discrepancies

• Understand the tax implications of each transaction type

• Consult a tax professional if your activity is high-volume or complex

These steps ensure you properly report crypto, minimize your taxable income, and avoid unexpected tax liabilities.

Final Thoughts

Crypto tax reporting in 2025 is more standardized but also more heavily enforced. Whether you’re filing a single cryptocurrency transaction or navigating multiple wallets and platforms, accurate reporting of capital gain or loss is key to avoiding issues with the IRS.

At Count On Sheep, we specialize in digital asset tax strategy and compliance. From broker reports to staking income to DeFi activity, our team helps you file crypto taxes with confidence and accuracy.

Need help with your crypto tax return? Book a free consultation with Count On Sheep today.

FAQs: Crypto Tax Reporting in 2025

1. Do I need to report all crypto transactions to the IRS?

Yes. Reporting crypto transactions is mandatory, even if you didn’t receive a tax form like Form 1099-DA or Form 1099-MISC. The IRS considers crypto a form of property, so most transactions—including trades, sales, and even spending crypto—trigger taxable events.

2. What is the difference between capital gains and ordinary income from crypto?

• Capital gains occur when you sell or trade a crypto capital asset like Bitcoin or Ethereum for more than you paid. These can be short-term (held under 1 year) or long-term capital gains (held over 1 year), each with different crypto tax rates.

• Ordinary income includes earnings from staking, mining, airdrops, or interest—often reported on Schedule 1 or Schedule C, depending on whether it’s self-employment income.

3. How do I calculate gains or losses on crypto trades?

To calculate capital gains and losses, subtract the cost basis (your purchase price plus fees) from the fair market value at the time of the transaction. This applies to every trade, swap, or sale. Accurate calculation is essential for correct tax reporting and minimizing your overall tax bill.

4. What forms do I need to file for my crypto activity?

You may need several crypto tax forms, depending on your activity:

• Form 8949: Reports disposals of capital assets

• Form 1099-DA: New in 2025, reports gross proceeds from digital asset brokers

• Form 1099-MISC: For crypto income over $600 (e.g., staking)

• Form 1099-K: For high-volume cryptocurrency transactions

• Schedule D: Summarizes your total capital gains and losses

• Schedule C: If you earned self-employment income in crypto

5. What are some examples of taxable crypto transactions?

Taxable events include:

• Selling crypto for USD

• Trading one crypto for another

• Spending crypto on products or services

• Receiving crypto through mining, staking, airdrops, or yield farming

• Earning crypto as an independent contractor

Each of these has tax implications and must be reported.

6. What if I didn't get a 1099 form—do I still need to report crypto?

Yes. The absence of a form doesn’t remove your obligation to report crypto income. The IRS still expects accurate reporting of crypto transactions, including those from DeFi platforms, offshore crypto exchanges, and personal wallets.

7. Can I use crypto tax software to file my taxes?

Absolutely. Crypto tax software like CoinLedger, Koinly, ZenLedger, or TokenTax can help:

• Track and reconcile transaction data

• Calculate gains and losses

• Generate and file the appropriate tax forms
  Using software improves accurate reporting and reduces your risk of errors or tax evasion.

8. What happens if I don’t report my crypto activity?

Failing to report crypto can lead to:

• Penalties

• Interest charges

• A surprise tax bill

• IRS audits
  In serious cases, non-compliance can be considered tax evasion. Even if you made a mistake, proactively amending your return or seeking tax advice from a tax professional can mitigate the risk.

9. What records should I keep for crypto tax purposes?

You should maintain detailed records for every tax year, including:

• Dates of purchase and sale

• Token quantity

• Fair market value at the time of the transaction

• Fees paid

• Cost basis
  Keeping complete records helps when reconciling data on Form 8949 and reduces tax liability.

10. What is the IRS digital asset question on Form 1040?

On the 2025 tax return, the IRS asks whether you received, sold, sent, or disposed of any virtual currency (now called digital assets). Answering “yes” requires you to complete all related crypto tax reporting, even if your taxable gain is zero.

Still Have Questions About Your 2025 Crypto Tax Return?

At Count On Sheep, we help crypto investors like you:

• File accurately

• Minimize taxable income

• Avoid IRS penalties

Need help filing? Book your free consultation now and stay ahead of the IRS.