2025 Crypto Tax Guide: What You Need to Know to Avoid Trouble with the IRS 

The crypto landscape is evolving rapidly, and with it comes increasing scrutiny from the IRS. New regulations and reporting requirements mean that crypto investors and businesses must be more vigilant than ever to stay compliant. This comprehensive guide will help you understand the latest rules, avoid common pitfalls, and explore strategies to optimize your crypto tax situation in 2025. 

1. Key Regulatory Updates: Rev. Proc. 2024-28 and Form 1099-DA 

Rev. Proc. 2024-28 

Effective January 1, 2025, Rev. Proc. 2024-28 introduces a transition rule for switching from the universal wallet method to the wallet-by-wallet method for cost basis calculations. Taxpayers must also provide cost basis information to their brokers before the execution of a trade if they wish to use the specific identification method for cost basis allocation. However, IRS Notice 2025-7 provides a one-year delay for the implementation of this requirement, giving taxpayers until January 1, 2026, to comply. 

Consequences of Non-Compliance 

Failure to comply with Rev. Proc. 2024-28 can have significant implications: 

• Default Cost Basis Method: If taxpayers fail to provide detailed cost basis information for calculating their gains/losses, the IRS will default to the FIFO (First-In-First-Out) method, which may result in higher taxable gains. 

• Increased IRS Scrutiny: Non-compliance increases the likelihood of discrepancies in reporting, leading to audits or penalties. 

• Missed Tax-Saving Opportunities: Specific identification allows taxpayers to optimize their gains and losses, a benefit lost if the default FIFO method is applied. 

• Penalty Provisions: Rev. Proc. 2024-28 includes penalty provisions for failure to comply with the cost basis reporting rules. Taxpayers may face monetary penalties or additional reporting requirements if the IRS finds a taxpayer to be non-compliant. 

Form 1099-DA 

Form 1099-DA is a game-changer. Brokers must issue this form to taxpayers and the IRS, detailing crypto transactions, including sales, trades, and certain transfers. This eliminates ambiguity around taxable events and ensures accurate reporting. 

Challenges with Form 1099-DA 

• Reporting Sales Proceeds Only in 2025: For 2025, Form 1099-DA will report only the gross proceeds from crypto sales. It will not include cost basis information, which is essential for calculating accurate capital gains or losses. 

• Cost Basis Issues Post-2025: Beginning in 2026, brokers will also need to report cost basis. However, many brokers may lack comprehensive records of their customers’ acquisition costs, especially for assets purchased or transferred before the new regulations took effect. This could lead to inaccurate gain/loss calculations if taxpayers do not maintain their own records. 

Takeaway: Taxpayers must ensure they have detailed transaction histories, including acquisition costs and dates, to accurately calculate their taxable gains or losses and reconcile discrepancies with Form 1099-DA. 

2. Taxable vs. Non-Taxable Transactions 

Understanding taxable events is the foundation of crypto tax compliance: 

Taxable Transactions 

• Selling Crypto for Fiat: Triggering capital gains or losses. 

• Trading Cryptocurrency: Exchanging one token for another. 

• Using Crypto for Goods/Services: Fair market value at the time of payment is taxable. 

• Receiving Crypto: Staking rewards, mining income, and airdrops are taxed as ordinary income. 

Non-Taxable Transactions 

• Purchasing Crypto with Fiat: Only taxable upon sale. 

• Transferring Crypto: Moving assets between your wallets. 

• Holding Crypto: No tax applies until a disposition occurs. 

• Receiving Cash Rebate for Crypto Credit/Debit Card Purchases: This is treated the same way as traditional credit/debit card cash rebate for purchases. It’s not a taxable event. If the rebate is received in crypto, you can get “free” cost basis based on the FMV of the crypto upon receipt.  

Pro Tip: Track the cost basis and holding period of your crypto to distinguish short-term from long-term capital gains. 

3. DeFi, NFTs, and Other Complex Crypto Activities 

DeFi Transactions 

• Lending and Borrowing: Interest earned is ordinary income. 

• Liquidity Mining and Yield Farming: Rewards received are taxable. 

• Token Swaps: Considered sales or exchanges, resulting in capital gains or losses. 

• Bridging Events: Bridging may or may not be a taxable event, depending on the purpose of the event and how the bridging is structured.  

NFTs 

• Buying and Selling: Gains or losses depend on the cost basis and sales price. 

• Creators’ Royalties: Royalties are ordinary income. 

• Minting: Minting fees are not deductible for regular investors, but they can be treated as purchase price for the minted NFTs. 

• NFT Creations: NFT creators need to treat proceeds from the selling of NFTs they created as ordinary income.  

• Special Considerations: NFTs classified as collectibles may be taxed at higher rates. 

Reminder: DeFi and NFT transactions often generate multiple taxable events. Ignoring these can result in significant penalties. Always consult a qualified crypto tax specialist to help you determine the tax consequences for complicated transactions. 

4. Losses from Delisted Crypto and Exchange Bankruptcies 

Delisted or Worthless Crypto 

When a cryptocurrency becomes worthless or is delisted from exchanges, it may qualify as a capital loss. To claim the loss: 

• Demonstrate that the asset is permanently worthless. If the asset is still listed on the market but the trading volume is too low and you cannot sell it, you may not be able to claim a loss deduction until you have disposed of the asset. 

• Record the original cost basis and acquisition details. The loss you can claim is up to the amount of your cost basis. 

Exchange Shutdowns and Bankruptcies 

If your crypto is inaccessible due to an exchange’s bankruptcy: 

• Document your holdings and attempt to recover funds. 

• If recovery is unlikely, the loss may qualify as a capital loss. 

• Alternatively, it may be treated as a Ponzi-scheme loss under certain conditions. 

Tip: Consult a crypto tax professional to determine the best approach for claiming such losses. 

5. Crypto Tax Planning Strategies 

1. Tax-Loss Harvesting 

Offset gains by selling underperforming assets at a loss. Ensure you’re mindful of the IRS wash sale rule, which may soon apply to crypto. 

2. Optimize Holding Periods 

Long-term capital gains (held over one year) are taxed at lower rates than short-term gains. Plan your trades accordingly. 

3. Maximize Deductions 

If you incur business expenses related to crypto activities (e.g., software, equipment, or professional fees), these may be deductible if you qualify as a professional trader or business. 

4. Contribute to Crypto-Backed IRAs 

Consider using crypto-backed retirement accounts to defer taxes on gains until withdrawal, or completely tax free for qualified withdrawals if you are investing in crypto with a Roth IRA account. 

5. Donate Crypto to Qualified Charitable Organizations 

Donating crypto to qualified charitable organizations can offer significant tax benefits: 

• No Capital Gains Tax: Donors do not incur capital gains tax on appreciated crypto. 

• Fair Market Value Deduction: If held for over a year, the donation may qualify for a deduction equal to the fair market value of the crypto at the time of donation. 

• Eligibility: Ensure the recipient is a qualified 501(c)(3) organization to claim the tax benefits. 

• Valuation Requirements: For donations worth $5,000 or more, a qualified appraisal is required to substantiate the deduction. The appraisal must be completed by a certified appraiser and submitted with Form 8283 to the IRS. 

Tip: Keep detailed records of the donation, including the date, fair market value, and confirmation from the charity.  

6. Stay Informed and Proactive 

Proactively reconcile your transactions, especially with the advent of Form 1099-DA. Engage a crypto tax professional for complex situations. 

6. Best Practices for Staying Compliant 

• Use Crypto Tax Software: Automate transaction tracking and cost basis calculations. 

• Maintain Comprehensive Records: Document all transactions, wallet transfers, and supporting evidence for losses. 

• Stay Updated: Monitor IRS guidance and evolving regulations. 

• Work with a Professional: The complexity of crypto taxes warrants expert advice, especially for DeFi and NFT activities. 

7. Finding a Qualified Crypto Tax Professional 

How to Find the Right Expert 

Given the complexity of crypto taxation, finding a qualified professional is essential. Look for the following qualifications: 

• Specialization in Crypto: Ensure the accountant has experience handling crypto-related transactions, including DeFi, NFTs, and complex scenarios like staking or mining. 

• Certifications: Credentials like CPA (Certified Public Accountant), EA (Enrolled Agent), or advanced certifications in crypto taxation. 

• Client Testimonials: Positive reviews and references from other crypto investors or businesses. 

• Use of Crypto Tax Software: Experienced in using leading crypto tax software to streamline and ensure accuracy. 

Red Flags to Watch For 

Not all accountants claiming crypto expertise are well-versed in its nuances. Be cautious if: 

• Lack of Specific Knowledge: They provide generic advice that doesn’t address the specifics of crypto taxation, or they cannot speak in “crypto language” or don’t truly understand when you tell them about your complicated crypto transactions. 

• Resistance to Learning: They dismiss newer concepts like NFTs or DeFi as irrelevant. 

• Inconsistent Communication: They cannot clearly explain strategies or IRS requirements in plain terms. 

• Bad Advice: They tell you not to worry about reporting your crypto transactions or claim that the IRS will not be able to catch you if you don’t report. 

Crypto Tax Guide Pro Tip 

Ask potential professionals about their approach to handling complex crypto scenarios. A truly qualified expert will proactively discuss cost basis tracking, reporting requirements, and strategies to minimize tax liability. Beware of accountants who have no personal crypto experience at all. 

Final Thoughts 

2025 marks a significant shift in crypto taxation, with enhanced reporting requirements and heightened IRS scrutiny. By understanding the rules, planning strategically, and seeking expert guidance, you can stay compliant while optimizing your tax position. Don’t wait until tax season, start preparing now to avoid unnecessary stress and potential penalties!