Understanding the Risks of Cryptocurrency Tax Errors
With the IRS increasing audits in 2025, cryptocurrency investors must be cautious. It’s not solely about tax payments anymore; even minor oversights can lead to substantial penalties or costly audits.
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Common Tax Mistakes to Avoid
Here are five prevalent errors that often catch crypto investors off guard — and tips to maintain compliance:
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Neglecting Wallet-Based Accounting: The IRS now requires detailed reporting for each wallet’s transactions and balances. Tools like CoinTracking, CoinLedger, and TaxBit can help streamline this process.
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Misreporting Staking Rewards: Staking rewards are taxable once received in your wallet, even if they haven’t been sold. For instance, if you earn 2 ETH valued at $3,000 as staking rewards, this is taxable immediately.
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Overlooking IRS Notices and Form 1099-DA: Important IRS communications, such as Notice 6371 and Form 1099-DA, outline your crypto income and must align with your tax filings to avoid red flags.
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Failing to Report All Transactions: Every transaction, even minor trades on decentralized exchanges, must be reported. The IRS employs blockchain analysis tools that can track such activities.
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Missing Opportunities to Adjust Cost Basis: 2025 introduces new guidelines allowing adjustment of crypto cost basis, which can lower capital gains tax if documented correctly.
Staying Audit-Ready
The complexity of crypto taxation can be daunting, but compliance doesn’t need to be stressful. Best practices include utilizing dependable crypto tax software, thoroughly reviewing your return, keeping detailed records, and being upfront about past errors. A proactive approach will prepare you for any IRS inquiries, allowing you to focus on your cryptocurrency investments.
For more detailed guidance, please refer to this article.
Note: The views expressed in this column are those of the writer and do not necessarily reflect those of CoinDesk, Inc. or its affiliates.
