For years, crypto lived in a sort of legal grey zone. Starting in 2020, the IRS asked taxpayers to report crypto holdings. This was mostly voluntary, because without standardized reporting from exchanges, enforcement was difficult. Millions of dollars simply slipped through the cracks.
The Treasury loses at least $50 billion annually from under‑reported crypto profits, and let’s be frank, the federal government definitely wants that money. With mainstream adoption exploding, crypto tax enforcement was only a matter of time…
If you ever wondered whether crypto is now part of mainstream finance, here’s your answer: The IRS has begun treating it exactly like traditional financial assets. The days of crypto tax avoidance are over.
Beginning with the 2025 tax year, a sweeping new tax reporting overhaul fundamentally changes how we must track, report, and pay taxes on cryptocurrencies.
At the center of the overhaul is Form 1099‑DA, a brand‑new reporting requirement aimed squarely at closing long‑standing crypto tax loopholes. Beginning January 1, 2025, crypto “brokers” – including centralized exchanges, some wallets, NFT marketplaces and even certain DeFi platforms – must report:
- Gross proceeds for every digital asset sale (2025)
- Cost basis for covered assets (2026 and beyond)
Nothing legitimizes an economic sector like Uncle Sam making sure he gets his cut. This is exactly the same type of reporting your bank, your brokerage and your employer already send to the IRS.
Why the IRS is tightening the rules now
The gears of bureaucracy turn slowly. But the combination of institutional adoption and mainstream acceptance have risen to the point that the IRS simply can’t rely on voluntary reporting anymore. The huge popularity of crypto ETFs certainly played a role, as well.
Because of those new reporting requirements, if you made money in crypto in 2025, the IRS now expects – and will receive – clear documentation. The same kind of documentation they receive for any other financial activity.
Here’s what we know for sure are tax-reportable events:
- Sales
- Crypto-to-crypto swaps
- P2P transactions (aka crypto payments)
- Staking rewards
- NFT mints and sales
- Transfers between platforms without clear basis records
Specifically about staking rewards, they’re now likely to be treated as taxable income upon receipt. Considering that ETF issuers can now distribute staking rewards, millions of mainstream investors may face staking‑related tax payments for the first time.
Crypto tax reporting is about to get much harder
Crypto is already taxed like property. Essentially, that means every transaction creates a gain or loss.
If you buy and hold, and trade only rarely, this might not be a concern. Based on the typical daily transaction volume of about $150 billion, though? A lot of crypto owners are also crypto traders.
These reporting requirements could easily become a nightmare if you:
- Move assets between wallets
- Trade frequently
- Used multiple exchanges over the years
- Failed to track cost basis
Here’s the thing: Most brokers don’t know your historical purchase price. They only see your crypto at the moment you transfer it. Starting in 2026, when they must report cost basis, we’re looking at one of the biggest landmines in the new reporting landscape. I’m not a tax expert, but here’s how I understand the challenge.
For regular transfers – gifts, moving assets between brokers, or selling something after losing records – the IRS does not let you “reset” your cost basis to the value at transfer. The rule is, the original cost basis carries over. If you don’t know the original cost basis, you must make a reasonable, defensible attempt to reconstruct it! And if the IRS decides your attempt is not defensible, they can simply treat the cost basis as zero – setting you up for huge, unexpected tax bills.
Since the exchanges haven’t been tracking cost basis (and won’t until 2026), they’ll likely report it as “unknown.” If the IRS sees transactions with an unknown cost basis and low or no gain, they get suspicious – you’ll get automated notices at best, and at least raise the likelihood of an audit.
In a lot of cases, it’s simply impossible to reconstruct the cost basis! When you consider factors like:
- Years of wallet hopping
- Lack of record-keeping (especially for rare occurrences like airdrops)
- Incomplete exchange histories
- DeFi transactions lacking third-party reporting
I’m sorry to say that cryptocurrency does not qualify for a special exception just because you lost your records. If you cannot document your cost basis, the IRS can – and frequently does – assign a basis of $0. If you don’t understand why this is bad, I respectfully recommend you engage a crypto tax expert who can explain it better than I can.
Even the IRS itself acknowledges the complexity of the challenge. According to CNBC’s reporting, crypto tax‑record providers like TaxBit, TokenTax, ProfitStance, and ZenLedger are already seeing a surge in demand as investors scramble to get their records straight.
But there’s a better way…
Why a Digital IRA makes more sense than ever
Here’s the part most crypto investors don’t know – and where BitIRA customers often feel a huge sense of relief:
A Digital IRA naturally avoids many of these headaches.
Here’s why:
1. Trades inside an IRA are tax‑deferred (or tax‑free in a Roth IRA)
You can buy, sell, rebalance, and move between digital assets without triggering annual capital‑gains calculations.
2. No need to track cost basis for every trade
You’re not filing 8949 forms for every single trade you make in your Digital IRA. The account is tax‑advantaged by design. Cost basis doesn’t even matter until you’re in retirement, and making withdrawals. That’s right – you can throw all those spreadsheets into the recycle bin.
3. No surprise tax bills
Crypto’s volatility cuts both ways. A huge gain one month could trigger a steep tax liability the next – unless you trade within an IRA. Distributions, whether from an airdrop or a staking reward, aren’t considered “income.”
4. Long-term investors get long-term advantages
We believe crypto is an asset for the long haul. IRAs reward long‑term thinking with compounding tax advantages that never require reconstructing years of transactions. Your annual capital gains continue to accrue, year after year, tax-free. All gains are exempted from taxes until retirement (and, with a Roth IRA, even afterward). Learn more about the different types of retirement accounts here.
If you love crypto but hate complications, the IRS crackdown isn’t just a challenge – it’s an opportunity.
You can move your digital assets into a retirement account designed for compliance and tax efficiency. Even better, you can open your Digital IRA right now (anytime, day or night) in less than 10 minutes.
Don’t wait until tax season (the IRS isn’t)
2025 will be the first year the IRS receives mass‑scale digital‑asset reporting directly from brokers. In other words:
- Compliance is tightening
- Audits will increase
- Tax complexity is rising
But you can opt out of the hassle – skip the paperwork and the headaches – while preserving the upside of crypto ownership.
Open a Digital IRA with BitIRA. It’s not about avoiding taxes – it’s about owning your crypto in a manner that was specifically designed for:
- Tax efficiency
- Long‑term compounding
- Secure custody
- Clear, established (and automated) reporting rules
You really can take advantage of crypto’s massive growth potential without all the hassle. That’s exactly what BitIRA was designed to do.
The Wild West era may be ending. But I for one still believe there’s gold in them thar hills. If you feel the same way, I suggest you learn more about BitIRA. Alternately, you can take the plunge and open your Digital IRA right now.
