Every time you buy, sell, trade, or even receive crypto as a gift or reward, the IRS sees a taxable event. No minimum amount. Not even $10 is too small. And starting in 2026, the rules just got harder. If you're holding crypto, you need to know what to track - and how to prove it. This isn't about guessing. It’s about having a paper trail so strong, even the IRS can’t argue with it.
Why Crypto Tax Records Are Different
Crypto isn’t cash. The IRS treats it like property - same as stocks or real estate. That means every time you trade Bitcoin for Ethereum, or use Dogecoin to buy a coffee, you’ve triggered a capital gain or loss. You need to know what you paid for it, when you got it, and what it was worth when you spent it. Sounds simple? It’s not. Especially when you’re juggling five wallets, three exchanges, and a DeFi protocol or two.
Before 2025, you could average your cost basis across all your holdings. Now, you can’t. Starting January 1, 2025, the IRS requires wallet-by-wallet accounting. That means if you bought 1 BTC in Wallet A in 2022 and another in Wallet B in 2024, you can’t mix them. Each wallet’s purchase price, date, and transaction history must be tracked separately. One mistake, and you could overpay taxes - or get flagged.
What Exactly Needs to Be Recorded
You can’t just remember what you did. You need documented proof. Here’s what you need to track for every single crypto activity:
- Buying crypto: Date, amount, currency, price paid (in USD), and where you bought it (exchange or wallet).
- Selling or trading: Date, amount sold, what you got in return, fair market value at time of sale, and original cost basis from the wallet it came from.
- Earning rewards: Staking, mining, or airdrops all count as income. Record the date you received it, how much, and its USD value on that day. You’ll owe ordinary income tax on this - not capital gains.
- Transferring between wallets: Even if you’re moving crypto from Coinbase to your Ledger, you still need to log it. Why? Because if you later sell from that Ledger wallet, the IRS needs to know the original cost basis. No log? No proof. You could end up paying tax on the full sale amount.
- DeFi activity: Providing liquidity, yield farming, or swapping tokens on Uniswap? Each interaction is a taxable event. You need the transaction hash, timestamp, asset amounts, and USD value at the time.
Don’t assume your exchange will do this for you. Coinbase sends Form 1099-DA for sales and exchanges, but only for transactions through their platform. If you moved crypto off-exchange before selling, they won’t know. That’s your job.
The New Form 1099-DA and What It Means
In early 2026, you’ll start receiving Form 1099-DA from your crypto broker - exchanges like Coinbase, Kraken, or Binance US. This form reports gross proceeds from sales or exchanges. But here’s the catch: it doesn’t tell you your cost basis. It just says how much you sold for. You still have to calculate what you originally paid. And if you used multiple wallets or non-US exchanges? You’re on your own.
Also, Form 1099-DA only covers brokered transactions. If you bought crypto on a peer-to-peer platform, mined Bitcoin at home, or got an airdrop from a new DeFi project - none of that shows up here. The IRS is counting on you to report it. And they’re not guessing. They’re using Chainalysis and other blockchain analysis tools to trace transactions across public ledgers. If you received ETH from a wallet that later sent funds to a Coinbase account, they’ll connect the dots.
Which Forms You Actually File
You won’t just write a note in your tax return. The IRS requires specific forms:
- Form 1040: The main tax return. You’ll check a box saying you had crypto transactions.
- Form 8949: The detailed transaction log. You list every sale, trade, or disposal - date acquired, date sold, proceeds, cost basis, and gain/loss. This feeds into Schedule D.
- Schedule D: Summarizes your total capital gains and losses.
- Schedule 1: Reports crypto income from staking, mining, or airdrops.
- Schedule C and SE: If you’re self-employed (e.g., mining as a business), you report income and expenses here, plus pay self-employment tax.
Missing one form? You risk an audit. Getting one wrong? You could owe penalties - plus interest. The IRS has been ramping up enforcement since 2023. In 2025 alone, they sent over 12,000 letters to U.S. taxpayers with unreported crypto activity. Don’t be one of them.
What Happens If You Don’t Keep Records
Imagine this: you sold 3 ETH in December 2025. You don’t remember when you bought them. You didn’t save your exchange statements. You didn’t track the wallet you moved them from. Now, the IRS says you owe $8,000 in capital gains tax.
You have no proof. So they assume your cost basis was $0. That means the full $8,000 is taxable. You pay tax on $8,000 instead of maybe $2,000. You also get hit with a 25% accuracy penalty. That’s $2,000 extra. And if they think you did it on purpose? That’s tax fraud. Fines. Interest. Maybe even criminal charges.
Real story: A trader in Texas lost $40,000 in crypto gains because he couldn’t prove his cost basis. He thought he was “just moving crypto.” The IRS said no - he had to prove every transfer. He didn’t. He paid $18,000 in back taxes and penalties.
How to Actually Keep Good Records
Don’t wait until April. Start now. Here’s how:
- Use a crypto tax tool: Platforms like Koinly, CoinTracker, or ZenLedger connect to your wallets and exchanges. They auto-import transactions, calculate cost basis per wallet, and generate Form 8949. Most cost $50-$150/year. Worth every penny.
- Save every confirmation: Email receipts, transaction hashes, screenshots of trade confirmations - save them all. Store them in a folder labeled “Crypto Tax 2025.”
- Label your wallets: If you have a “Staking Wallet,” “Trading Wallet,” or “Gift Wallet,” name them. It helps you track purpose and cost basis later.
- Track transfers: When you move crypto from one wallet to another, write down: date, amount, from address, to address, and reason. “Sent to cold storage” or “Moved for DeFi yield” - anything. Just don’t leave it blank.
- Back it up: Don’t rely on cloud tools alone. Export your transaction history as CSV. Save it on an external drive. Make a PDF copy. You need multiple backups.
Pro tip: If you’re using a non-custodial wallet (like MetaMask or Trust Wallet), don’t assume your tax software can see everything. You’ll need to manually import transaction history from blockchain explorers like Etherscan or Solana Explorer.
What Doesn’t Work
Don’t try to clean up your records at the last minute. You won’t remember which wallet held which coins from 2021. You won’t find old emails. You won’t recall the exact USD value of a 0.002 ETH airdrop from a defunct project.
Don’t rely on exchange summaries alone. They don’t show transfers between your own wallets. They don’t show DeFi interactions. They don’t show mining rewards from your own rig.
Don’t use FIFO (First In, First Out) unless you’re sure. The IRS allows specific identification - meaning you can choose which coins to sell. But only if you document it. If you don’t, they’ll assume FIFO - and it might not be the best option for you.
What to Do If You’re Behind
If you’ve been trading crypto for years and never kept records, you’re not alone. But you need to act.
- Start with your biggest transactions: Find your largest sales or trades. Trace them back using exchange statements or blockchain explorers.
- Use historical price data: Sites like CoinMarketCap or CoinGecko let you look up crypto prices by date. Use them to estimate fair market value for past rewards.
- File an amended return: If you filed taxes in prior years without reporting crypto, you can file an amended return (Form 1040-X). The IRS has a voluntary disclosure program - it’s not perfect, but it’s better than waiting for them to find you.
The IRS doesn’t want to punish you. They want you to pay what you owe. But they won’t accept “I forgot.” They need proof. So get it.
Final Advice: Treat It Like a Job
Crypto tax compliance isn’t a one-time task. It’s an ongoing habit. Set a reminder every month. Open your tax tool. Review your latest transactions. Log any transfers. Update your wallet labels. Spend 15 minutes. That’s all it takes.
And if you’re unsure? Talk to a tax pro who understands crypto. Not your general CPA. Someone who’s filed 100+ crypto returns. They’ll spot gaps you didn’t even know existed.
Because here’s the truth: the government is watching. And if you’re not keeping records, you’re gambling with your money - and your future.
Do I need to report crypto transactions under $600?
Yes. The $600 threshold only applies to Form 1099-DA, which brokers issue to report sales. But the IRS requires you to report ALL crypto transactions - no matter how small. Even a $10 trade triggers a taxable event. You must report gains or losses on Form 8949 regardless of amount.
What if I lost access to an old wallet?
If you can’t access the wallet, you can’t prove the cost basis. The IRS will assume your cost basis was $0. That means the full value of any coins you later sold will be taxed as gain. Your best option is to document what you remember - transaction dates, estimated amounts, and any related records (email, screenshots, exchange history). File with an explanation. It’s not ideal, but it’s better than ignoring it.
Are airdrops and staking rewards taxed differently?
Yes. Airdrops and staking rewards are taxed as ordinary income at their fair market value when you receive them. You don’t pay capital gains until you sell them. For example, if you get 5 SOL from staking and it’s worth $200 at the time, you report $200 as income. Later, if you sell those 5 SOL for $300, you report a $100 capital gain.
Can I use crypto tax software for DeFi?
Some tools like Koinly and CoinTracker support major DeFi protocols like Uniswap, Aave, and Curve. But they can’t track every interaction - especially on newer or obscure chains. You’ll likely need to manually input transaction hashes from blockchain explorers. Always double-check their calculations.
What if I mine crypto at home?
Mining income is taxed as ordinary income based on the fair market value of the coins when you receive them. You can deduct expenses like electricity, hardware depreciation, and cooling costs on Schedule C. Keep receipts and log your mining hours. If you mine as a business, you may also owe self-employment tax.