In 2025, the IRS ramped up its crypto enforcement efforts by sending thousands of letters to investors flagged for questionable reporting. These weren’t just warnings—they were follow-ups based on actual exchange data and blockchain analysis. Whether you casually bought Ethereum years ago or trade altcoins every week, the IRS expects you to report all activity clearly.
Many crypto holders don’t realize that using digital coins—even in small ways—can create tax obligations. The rules aren’t always intuitive, and mistakes can lead to penalties or audits. As tax season approaches, knowing what to report, how to track it, and when to seek help is more important than ever. This guide breaks it down so you can file with clarity and avoid trouble.
- How Crypto Became an IRS Priority
For years, crypto operated in a legal gray area. Early users moved coins across wallets and exchanges with little fear of scrutiny. That changed when the IRS won access to user data from major platforms like Coinbase. Since then, enforcement has expanded. The 2021 infrastructure law classified many digital asset platforms as brokers, meaning they’ll soon report transactions directly to the IRS—just like stock brokers do.
This shift makes it easier for the government to compare your return with what exchanges submit. As a result, crypto tax compliance has become a high-profile concern. To help with this growing pressure, many investors now work with professionals who understand the space.
One option is George Dimov CPA, which offers cryptocurrency tax service support for both casual traders and active crypto users. Dimov Tax & CPA Services assist clients by preparing accurate reports for IRS compliance. Their team stays current on evolving tax rules and helps ensure that every transaction is reported correctly and on time.
2. Decoding the 1040 “Digital Assets” Question
Near the top of Form 1040, you’ll see a yes-or-no question: Did you receive, sell, exchange, or otherwise deal with digital assets? Checking “no” when the answer should be “yes” can be seen as a false statement. Even simple actions—like receiving crypto as a gift or swapping one coin for another—count. If you checked “yes,” the IRS expects details on supporting forms. If you didn’t, they may compare your return against third-party data. This one checkbox acts as a filter. It helps the IRS decide whose filings need a closer look, so answer it carefully.
3. Taxable Moments You Might Miss
Crypto taxes aren’t just about selling coins for cash. Many actions count as taxable events, even if you don’t think of them as “income.” Trading one token for another? Taxable. Using crypto to buy a service? Also taxable. Even receiving an airdrop or staking reward must be reported, usually as ordinary income. These events create gains or losses depending on the market value at the time. A major issue is that people don’t track these changes when they happen. Then, at tax time, they guess or omit them. That’s risky. You need accurate records to report each event correctly.
4. Nailing Down Cost Basis the Right Way
Cost basis is what you originally paid for a coin, including fees. When you later sell or use that coin, your gain or loss is the difference between the sale price and your cost basis. This seems simple, but crypto traders often move assets between wallets or exchanges. If you don’t track your purchase details, you may lose that data. Without it, the IRS could assume your entire sale is a gain. To stay safe, you should record dates, amounts, and prices for every transaction. Common methods include FIFO (first-in, first-out) and specific identification, which you must apply consistently.
5. Using Losses Without Raising Red Flags
Selling coins at a loss can reduce your taxes, but you need to follow the rules. Capital losses first offset capital gains. What gets tricky is when investors try to sell and rebuy the same coin too quickly. Stocks are subject to the wash-sale rule, which blocks loss deductions if you repurchase the same asset within 30 days. Crypto isn’t formally covered yet, but this may change soon. Even now, frequent wash-like trades can draw unwanted attention. It’s smarter to plan losses with care.
6. Reporting Income From Mining, Staking, and DeFi
Income from crypto doesn’t just come from trading. If you mine coins, earn staking rewards, or participate in DeFi protocols, you may owe tax even if you don’t sell the coins right away. Mining income is usually treated as self-employment income. You must report the fair market value of the coins on the day you receive them. Staking rewards are typically taxed as ordinary income when you gain access to the coins, not when you sell them. DeFi activity adds more complexity—yield farming, lending, and token swaps can each trigger separate tax events. Many users don’t track this properly, but the IRS expects accurate figures. If your crypto activity goes beyond casual use, you’ll likely need to file extra forms like Schedule C and pay self-employment tax as well.
7. Keeping Records the IRS Actually Accepts
Crypto moves fast. But the IRS moves with paperwork. You need to keep clear records of every transaction, not just totals at the end of the year. This includes dates, wallet addresses, coin types, values in U.S. dollars, and what each transaction was for. Most exchanges let you export CSV files. Wallet explorers can help fill in gaps. If you use multiple wallets or DeFi platforms, consider using tracking tools that consolidate data in one place. The IRS recommends saving records for at least three years, but six years is safer if there’s a risk of underreported income. Organized records make audits much less painful.
The IRS no longer treats crypto like a niche issue. Whether you’re buying coins or building passive income through blockchain apps, you need to understand your tax duties. That means tracking every move, reporting income correctly, and staying current with rule changes. You don’t need to fear the IRS if your return is clean and your records are solid. With the right preparation—and the right help if you need it—you can file with confidence and avoid costly errors. Start early. Review your crypto activity now, so tax season doesn’t catch you off guard.
