Company profit tax calculation under the new IRS form: Key issues investors need to understand

In 2025, the U.S. Internal Revenue Service (IRS) introduced a new tax form called 1099-DA, which will fundamentally change how millions of crypto investors file their taxes. This form, reported by crypto brokers to users and the IRS, details sales and transactions of digital assets, marking a significant expansion of federal oversight over the crypto market. However, there’s a hidden trap in the new rules: initially, the 1099-DA only reports gross proceeds from transactions, without including the investor’s original purchase price or cost basis. Missing this critical information could directly impact investors’ capital gains tax calculations.

Why Can 1099-DA Lead to Higher Tax Bills?

Understanding the core of tax calculations is the first step to avoiding overpaying. Capital gains tax is calculated by subtracting the cost basis from the sale proceeds. In other words, taxable gain = sale price – purchase price.

For example, suppose an investor buys XRP for $40,000 and later sells it for $70,000. From a capital gains perspective, the actual taxable gain should be $30,000. But if the investor only relies on the $70,000 figure reported on the 1099-DA, without recording the $40,000 cost basis, they might mistakenly believe they have a $70,000 gain.

This discrepancy isn’t trivial. While the IRS won’t automatically double someone’s tax bill, if taxpayers fail to accurately report their cost basis, they could end up significantly overpaying. Tax professionals repeatedly emphasize that the main risk isn’t intentional underreporting but misunderstanding what the new form actually requires.

The Risks of Missing Cost Basis Data in Capital Gains Calculations

Traditional stock brokers’ 1099-B forms usually include both proceeds and cost basis information. But crypto brokers face a fundamental challenge: they often cannot fully track cost basis data due to reasons such as:

Three Major Data Collection Obstacles:

• Digital assets moving across multiple exchanges, making full historical tracking impossible
• Assets transferred into self-custody wallets, breaking the link to original purchase records
• Assets originating from platforms that no longer exist or are no longer accessible

Due to these practical limitations, the IRS has decided to phase in cost basis reporting. In the first year of 1099-DA reporting (starting in 2025), many crypto brokers are expected to only provide proceeds information. Full cost basis reporting is planned for later in 2027, when systems and transfer tracking standards will be more unified.

OnChain Accounting partner David Zareh highlights the core issue: “Fragmented transactions leave broken traces.” This statement reflects the reality of the crypto market—assets moving across platforms, scattered historical records—directly impacting the accuracy of capital gains calculations.

Three Data Points Crypto Investors Must Track Themselves

In this environment, the burden shifts back to taxpayers. Relying solely on exchange-issued forms is insufficient; investors must proactively:

1. Track Original Cost Basis Prices
Record the exact purchase price and date for each transaction. This is fundamental for accurate capital gains calculations.

2. Record Transfers Between Wallets and Platforms
Track every transfer of assets from one exchange to another or into self-custody wallets. While these transfers don’t trigger taxable events, they are crucial for understanding the cost basis chain.

3. Reconcile Exchange Reports with Personal Records
Ensure that the digital assets reported to the IRS by exchanges match your tax filings. Any discrepancies could trigger IRS audits or further scrutiny.

Coinbase Vice President of Tax Lawrence Zlatkin warns: “This is a real, legitimate threat… clients don’t like paying more.” This underscores the industry’s deep understanding of the risks involved.

For high-frequency traders and long-term holders, this challenge is even greater. Moving assets across multiple platforms over years requires meticulous record-keeping. Failing to do so could lead to two outcomes: overpaying taxes or attracting IRS audits and penalties.

The IRS Accelerates Digital Asset Oversight

The new 1099-DA form is just part of the IRS’s broader digital asset regulation plan. In recent years, the agency has added digital asset questions at the top of individual tax returns and increased enforcement efforts.

Historically, the crypto market operated with limited third-party reporting, contrasting sharply with stocks and bonds. But this gap is rapidly closing. The introduction of 1099-DA clearly indicates that the IRS now expects digital assets to be reported more like traditional financial instruments.

This shift reflects a larger trend: government agencies are expanding their oversight of the crypto market. For investors, it means the previously gray areas are being brought under stricter regulatory frameworks.

Actions Investors Should Take

Given these new rules and potential risks, investors shouldn’t wait passively. Proactive steps include:

1. Start Organizing Historical Transaction Records Now
If you haven’t already, begin compiling your complete transaction history. Many exchanges offer CSV exports to help with this.

2. Consult a Tax Professional
Before filing your 2025 crypto taxes, seek advice from a qualified tax professional. They can help you understand the new forms and ensure your capital gains calculations comply with IRS requirements.

3. Use Specialized Tax Software or Services
Several tools are now available designed specifically for crypto traders, automating cost basis calculations and reducing errors.

4. Regularly Reconcile Your Records with Exchange Reports
Make sure your personal records match the 1099-DA forms submitted by exchanges. Address any discrepancies before filing.

Overall, the new IRS forms and the complexity of capital gains calculations mean crypto investors can no longer be complacent about tax matters. Understanding the rules, maintaining accurate records, and consulting professionals are key steps to protecting your financial interests in this evolving regulatory environment.