IRS Crypto Tax Reporting Requirements: Form 8949 Explained for 2025

Every time you sell Bitcoin, trade Ethereum for Solana, or use crypto to buy coffee, the IRS sees a taxable event. Not just when you make a profit - even if you break even or lose money, you still have to report it. Starting in 2025, the rules got tighter. The IRS now requires every single crypto transaction to be tracked and reported on Form 8949. This isn’t optional. It’s not a suggestion. It’s the law.

What Is Form 8949 and Why Does It Matter?

Form 8949 is the IRS form you use to report the sale or exchange of capital assets - including cryptocurrency. The IRS treats crypto as property, not money. That means every time you trade, sell, or spend digital assets, you’re selling an asset. And like selling a stock or a house, you have to calculate your gain or loss.

This form isn’t filed alone. It feeds into Schedule D, which then rolls into your main tax return (Form 1040). But without Form 8949, Schedule D can’t be completed accurately. If you skip Form 8949, you risk an audit, penalties, or even back taxes with interest.

What Transactions Must You Report?

You must report every disposal of crypto, no matter how small. That includes:

• Selling crypto for fiat (USD, AUD, EUR)
• Trading one crypto for another (BTC for ETH, for example)
• Using crypto to buy goods or services
• Gifting crypto (if over $18,000 in value)
• Receiving crypto from airdrops or hard forks - when you later sell or trade it

Even if you didn’t get a 1099 form from your exchange, you still have to report it. The IRS doesn’t wait for you to be notified. They expect you to know.

What Information Goes on Form 8949?

For every single transaction, you need to fill in:

• Description of the property (e.g., “Bitcoin,” “ETH”)
• Date you acquired it
• Date you sold or disposed of it
• Gross proceeds (how much you got in USD at the time of sale)
• Cost basis (what you originally paid, including fees)
• Gain or loss (proceeds minus cost basis)

You also need to pick the right category for each transaction:

• Short-term: Held one year or less - taxed at your regular income rate
• Long-term: Held more than one year - taxed at lower capital gains rates (0%, 15%, or 20%)

2025 Changes: Form 1099-DA Is Here

Big change: Starting January 1, 2025, crypto exchanges like Coinbase, Kraken, and Binance US are required to issue Form 1099-DA to customers. This form reports gross proceeds from sales and exchanges. But here’s the catch - it does NOT include your cost basis.

That means you still have to track your own cost basis. Exchanges don’t know when you bought crypto on another platform, transferred it from a wallet, or mined it. They only see what happened on their platform. So even with Form 1099-DA, Form 8949 isn’t going away. You’ll still need to manually calculate your cost basis and report each transaction.

Cost basis reporting from exchanges will start in 2026. Until then, you’re on your own.

Wallet-by-Wallet Accounting Is Now Required

Before 2025, you could use “universal accounting” - averaging your cost basis across all your Bitcoin holdings, no matter where they were stored. That made things easier. But now, the IRS says: no more.

Starting January 1, 2025, you must use “wallet-by-wallet” accounting. That means if you bought Bitcoin on Coinbase in 2021 at $30,000 and transferred it to your Ledger wallet in 2023, then sold it in 2025 for $60,000 - you must use the $30,000 as your cost basis. You can’t average it with Bitcoin you bought later on Kraken at $45,000.

This change hits traders hard. If you’ve moved crypto between wallets, exchanges, or DeFi platforms, you now need a full transaction history for every single coin. One missed transfer? You could overpay taxes or get flagged.

How Do You Track All This?

Most people can’t do this manually. If you’ve done more than 10 crypto transactions in a year, you’re already in trouble trying to do it by hand.

That’s why most users turn to crypto tax software:

• CoinTracker - connects to 150+ exchanges and wallets, auto-calculates cost basis
• Koinly - good for DeFi and NFTs, supports multi-chain tracking
• TaxBit - enterprise-grade, used by professionals and crypto firms

These tools import your transaction history from wallets and exchanges, match buys to sells, and auto-fill Form 8949. But they’re not perfect. You still need to review the results. Sometimes, airdrops, forks, or staking rewards get misclassified. You might need to manually adjust a few entries.

What About Staking, Mining, or Airdrops?

Staking rewards, mining income, and airdrops are taxed as ordinary income when you receive them - not when you sell. You report those on Form 1099-MISC (if over $600) or as “other income” on Schedule 1.

But here’s the key: when you later sell that staked ETH or that airdropped token, you must report the sale on Form 8949. Your cost basis for those assets is the fair market value in USD at the time you received them.

Example: You got 5 SOL from a staking reward in March 2024 when SOL was $120. Your cost basis is $600. In June 2025, you sell it for $180 per SOL. Your gain is $900 - report that on Form 8949 as a short-term gain.

Common Mistakes People Make

• Only reporting sales to USD - ignoring crypto-to-crypto trades
• Using average cost basis across wallets - now illegal
• Forgetting to include transaction fees in cost basis
• Assuming no 1099 means no reporting needed
• Not tracking acquisition dates - mixing up short-term vs long-term

The IRS knows these mistakes happen. That’s why they’re auditing more crypto returns. In 2024, they sent out over 10,000 crypto-related audit letters. Many of those were triggered by mismatches between exchange reports and what taxpayers claimed.

How Much Time Does This Take?

If you’re new to crypto tax reporting, expect to spend 10 to 30 hours just learning the system. For someone with 50+ transactions in a year, it’s 20 to 40 hours manually. With software, you can cut that to 3 to 8 hours - but you still need to review every output.

The best practice? Track your transactions weekly. Log every buy, sell, transfer, and swap in a simple spreadsheet or app. Don’t wait until April. That’s how people get caught.

What Happens If You Don’t Report?

The IRS can assess penalties for underreporting:

• 20% accuracy-related penalty on underpaid tax
• Up to 75% penalty for fraud
• Interest on unpaid taxes - compounded daily

They can also subpoena exchange records. If you sold $10,000 in crypto and didn’t report it, they’ll see it on Coinbase’s 1099-DA and match it to your return. No hiding.

What’s Next After 2025?

In 2026, exchanges will start reporting cost basis on Form 1099-DA. That’s a big step toward matching what you report with what they report. But it won’t fix everything. If you moved crypto from an old wallet or bought it on a foreign exchange, you’ll still need to track your own basis.

The IRS is also looking at DeFi protocols - lending, yield farming, liquidity pools. Right now, there’s no clear guidance. But don’t assume they’re exempt. If you earn income or realize a gain, it’s taxable.

Final Advice: Don’t Guess. Document.

Crypto tax isn’t about being smart. It’s about being organized. The IRS doesn’t care if you’re a beginner or a pro. They care if your paperwork matches reality.

Start now. Use software. Keep records. Review every transaction. If you’re unsure, consult a tax pro who’s handled crypto before - not just any CPA. Ask if they’ve filed Form 8949 for crypto clients this year.

This isn’t just about taxes. It’s about staying legal in a space that’s still evolving. The rules are clear. The penalties are real. And the IRS is watching.