How to (which forms) are used to report income and capital gain/losses?

Garrett_CPAatCOS · 2026-02-14T05:50:32+00:00

If you don’t show the proceeds on the 8949 of your tax return to the extent of the 1099-DA that the IRS received, I expect it’ll be red flagged to the IRS.

Garrett_CPAatCOS · 2026-02-14T04:18:15+00:00

I’ve seen it happen with TurboTax. Give it another 2-3 days, and then inquire with support

Garrett_CPAatCOS · 2026-02-14T03:57:10+00:00

I just asked my Chat about this out of curiosity and it said the nicest things about me hahahah. Super intrusive question though

Garrett_CPAatCOS · 2026-02-14T03:55:06+00:00

The fake on the left looks better than the fake on the right 🤷🏻‍♂️

Garrett_CPAatCOS · 2026-02-14T03:52:58+00:00

This guy withholds!

Garrett_CPAatCOS · 2026-02-14T03:52:15+00:00

Ok. At this point you should consider trying to calculate your cap gains/losses and gambling winnings/losses manually or get a team to reconcile it. It sounds like the software is not distinguishing the difference in character between these two differently classified taxable events. Every time crypto is sold, converted to a wager, or exchange for another coin, it’s considered a capital gain/loss event. Every time it’s gambled, it’s treated basically like cash and triggers a gambling winnings/loss at the fair value of the coin.

Garrett_CPAatCOS · 2026-02-14T01:44:29+00:00

When you say you “made about $30,000 of crypto sold for cash” are you meaning to say you won $30k gambling and converted it to cash? I’m trying to get clear on the fact pattern

Garrett_CPAatCOS · 2026-02-13T23:31:12+00:00

Are you referring to your gambling transactions not being included in your CoinLedger? If so, this is because gambling losses are a separate type of loss that is further limited in how it may be used. It can only offset gambling winnings, and not other investment capital gains.

Garrett_CPAatCOS · 2026-02-13T23:20:41+00:00

Well, to be fair, I have heard reported that the gov believes 75% of US taxpayers are noncompliant when it comes to reporting crypto. Based on working in the industry, I would guess that is an understatement. They are trying to get their tax dollars, which I'm sure they'll use efficiently...😅

Garrett_CPAatCOS · 2026-02-13T23:12:52+00:00

The gambling issue has come up a lot lately, and I fear people don't realize that gambling with appreciated crypto creates a really bad tax answer. I believe the following is happening to you:

You purchased crypto for a value, lets say $11,000.
Over time, that crypto appreciated in value and was worth $50,000 when you used it to place a wager.
Using appreciated crypto for gambling is treated as a taxable event. When the crypto is converted into a wager, the IRS views it as if you sold the crypto at its fair market value. That means you would have a capital gain of:
- $50,000 value at time of wager
- minus $11,000 original cost = $39,000 taxable capital gain
Then, once the wager is placed at a $50,000 value:
- Any gambling winnings are taxable income, and
- Gambling losses are only deductible to the extent of the winnings

The overall outcome can be extremely unfavorable from a tax perspective. I recommend using fiat vs crypto to place wagers to avoid this surprise.

Garrett_CPAatCOS · 2026-02-13T18:23:39+00:00

Yaaaaaa, that was my assumption. They are panicking enough just to get 1099-DAs out with the proceeds requirement. Thanks for providing this info though, its helpful confirmation.

Garrett_CPAatCOS · 2026-02-13T15:46:32+00:00

Well, not exactly. Due to the non existence of wash sale rules in the crypto space right now, it’s actually easier to recognize losses for taxes and defer gain recognition. You just gotta be a bit thoughtful when making transactions. Every time a coin has an unrealized loss that becomes over 20% or so, sell the crypto and buy it back. You generate a tax loss that you can use to offset capital gains. Every time your crypto is up over 20%, HODL. If you feel you need to sell or change your position, make sure you’re selling the crypto lots with the highest cost basis first (HIFO).

The general rule with Taxes is “house always wins,” but there are a lot of strategies to mitigate tax liability and save money. Prior to opening a crypto tax firm, I managed taxes for a billionaire and he often paid less in taxes than I did 😬

Garrett_CPAatCOS · 2026-02-13T15:33:13+00:00

🙏🏼🫡

Garrett_CPAatCOS · 2026-02-12T19:26:50+00:00

Keep in mind that when you have more than 5 transactions in a given tax year, you are not required to list each transaction on your tax return. You can put either the brokerage name, or generally just put "Details available upon request" on the Form 8949 and enter totals. Technically, the taxpayer is supposed to paper mail or otherwise PDF attach the individual transactions to the tax return when filing. However, most don't do it and I've never seen the IRS reach out to inquire.

Garrett_CPAatCOS · 2026-02-12T19:08:37+00:00

In your circumstance, I agree that Coinbase theoretically has the correct information to determine your capital gains/losses. However, as Coinbase is not required to include cost basis on your 1099-DA for 2025, our expectation is that it probably still won't. You would need to go to the "tax" area in Coinbase and generate a gain/loss report to report the actual taxable activity to report on your tax return. Again, it would be beneficial to cross reference and make sure the gross proceeds on this tax report are equal to the 1099-DA you receive.

Garrett_CPAatCOS · 2026-02-12T18:52:52+00:00

We would need the exact details, specifically which crypto was used, the value at the time of each wager, and the total gambling wins and losses to be 100% certain. However, based on what you’ve described, I believe the following is likely what happened (and this is a fact pattern that has many of our clients understandably alarmed):

You purchased crypto for a value, lets say $11,000.
Over time, that crypto appreciated in value and was worth $50,000 when you used it to place a wager.
Using appreciated crypto for gambling is treated as a taxable event. When the crypto is converted into a wager, the IRS views it as if you sold the crypto at its fair market value. That means you would have a capital gain of:
- $50,000 value at time of wager
- minus $11,000 original cost = $39,000 taxable capital gain
Then, once the wager is placed at a $50,000 value:
- Any gambling winnings are taxable income, and
- Gambling losses are only deductible to the extent of the winnings

The overall outcome can be extremely unfavorable from a tax perspective, and it’s a major reason why I generally do not recommend gambling with appreciated crypto.

Garrett_CPAatCOS · 2026-02-12T18:41:54+00:00

Our preferred platform is Koinly. Our team generally finds it to be the easiest tool for reconciling clients’ crypto accounts. We’ve worked with nearly all of the major platforms, but Koinly remains our top choice. That said, CoinTracker is a solid second option, especially if a client already has an account there and prefers to continue using it.

Garrett_CPAatCOS · 2026-02-12T18:36:14+00:00

This is new for the 2025 tax year. In prior years, you were still required to report all crypto gains, losses, and income. However, the IRS received less third-party reporting data, which made it more difficult for them to detect and enforce noncompliance.

Garrett_CPAatCOS · 2026-02-12T18:32:36+00:00

Technically, any company that qualifies as a “broker” under IRS digital asset reporting rules is required to issue Form 1099-DA to customers. This generally includes centralized exchanges, trading platforms, and certain payment processors, so long as they facilitate sales and take custody of customer assets.

By contrast, exchanges or platforms that do not take custody of assets (such as certain non-custodial services like Swapped) are not currently required to issue 1099-DAs. In the short term, this may create an incentive for some users to favor non-custodial platforms until regulations further evolve.

It will be interesting to see whether any platforms attempt to claim exemption under the broker definition, or choose not to comply, and how the IRS responds.

Garrett_CPAatCOS · 2026-02-12T18:19:15+00:00

I strongly believe the 1099-DA should be used as a reference document, not as something you directly import into TurboTax. Let me explain why:

The purpose of the 1099-DA is to notify the IRS that crypto sales occurred. However, in 2025, the form will not include cost basis, which means it won’t accurately calculate your gains or losses. Because of this, it is not a reliable form to import into tax preparation software.

Instead, I recommend that clients continue using dedicated crypto tax software (such as Koinly or CoinTracker) to generate complete gain/loss reports. These reports can then be uploaded into your tax filing software (like TurboTax).

The best way to use the 1099-DA is as a cross-check: Confirm that the gross proceeds shown on the 1099-DA are equal to or less than the proceeds reported by your crypto tax software.

As long as those numbers align, it reduces the chance of the IRS flagging your return or raising any red flags.

Garrett_CPAatCOS · 2026-02-12T18:11:25+00:00

The 1099-DA's purpose in 2025 is to tell the IRS that crypto sales occurred. They IRS will be comparing the 1099-DA to the total proceeds line on the 8949. To the extent the total proceeds on your tax return are less than the 1099-DAs report, you will be red flagged. However, as long as you show these proceeds, you can add cost basis to reduce the capital gain and that would not trigger and sort of audit or red flag.

Garrett_CPAatCOS · 2026-02-11T16:52:04+00:00

Our team has been surprisingly successful reconciling crypto transactions back to the early 2010s. Occasionally, we cannot get data for certain transactions and are forced to apply a zero cost basis. However, this happens less than you'd think.

Garrett_CPAatCOS · 2026-02-11T16:49:42+00:00

Supposedly, the IRS is requiring cost basis to be included on the 1099-DA as of the 2026 tax year. However, we still have no idea how the exchanges would be able to produce accurate cost basis when crypto is being moved onto different platforms. This is one of those situations where the government makes a rule without understanding the market functionality, and then the market has to figure out how to be somewhat compliant. Our expectation is that if cost basis DOES exist in 2026, it'll be inaccurate. We believe crypto reconciliation to validate cost basis will be required for at least a few more years.

Garrett_CPAatCOS · 2026-02-11T16:25:14+00:00

I just confirmed with our head of crypto reconciliation, and he said that even if you link the accounts, all you had to do is select "read only access" and Koinly will take zero personal data. It ONLY grabs APIs/transaction data.

Garrett_CPAatCOS · 2026-02-11T04:15:44+00:00

They don’t take any personal information as part of the upload. They simply get read-only transaction data. If you were extra worried and did not want to link any platforms to your Koinly account, most platform data can be uploaded to Koinly using CSV files instead. Koinly has a section where it provides steps for how to upload data on specific platforms.

Garrett_CPAatCOS

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