Understanding Your 1099-DA
Starting with tax year 2025, crypto exchanges and digital asset brokers are required to report certain customer transactions to the IRS using the new Form 1099-DA. Many crypto investors will receive this form for the first time, and the information reported by exchanges is often incomplete or misunderstood.
Below is a short FAQ explaining what the 1099-DA is, why you received it, and how it connects to Form 8949 reporting and your crypto tax return.
General 1099-DA Questions
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The 1099-DA is the U.S. Internal Revenue Service's (IRS) newest informational reporting device. Starting with tax year 2025, IRS Regs require U.S. crypto exchanges and other digital asset brokers to report their customer's transaction information to the IRS throughout the year. Customers receive a year-end composite statement summarizing the prior year trading activity reported to the IRS. In simple terms, you can think of the 1099-DA as the crypto equivalent of the 1099-B, the informational reporting device required of stock brokers for many years.
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Because the IRS Regs now classify most crypto exchanges as brokers. If you traded or held digital assets on a centralized exchange, that platform is now legally required to report your activity. Receiving a 1099-DA is not a penalty or an audit flag, it is simply the new reporting reality for crypto.
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The form reports your gross proceeds from the sale of crypto assets, as well as transaction-level detail showing the token sold, the token or USD cash acquired, the acquisition date of the tokens sold, and the sale date. This informational reporting regime is still being phased in; for tax year 2025, exchanges are not required to report the cost basis of tokens sold. So do not be surprised to see blank fields for (a) cost basis of sold tokens, (b) the resulting capital gain/loss, and (c) whether the gain/loss was short-term or long-term. Because the information included in the 2025 1099-DA is inherently incomplete, it is critically important that taxpayers fill the gap through associated IRS Forms.
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Yes. All dispositions (sales) of digital assets are taxable events; and existing IRS Regs already require taxpayers to report the net gain or loss from such sales on IRS Schedule D, and the transactions which resulted in capital gain or loss on Form 8949. It is critical that you do not simply copy the numbers from your 1099-DA onto your return without reviewing them first. The IRS has already received the broker's reporting, so your tax return needs to be consistent with broker-reported information. The challenge: the capital gain or loss figure shown on your 1099-DA is almost certain to be inaccurate. Why? Because the exchange only knows what happened on its own platform (i.e. exchanges only know the basis of your crypto assets when: (a) you used cash or stablecoins on the platform to purchase the asset; (b) you disposed of one crypto asset for another on-platform; or (c) you provided cost basis information directly to the exchange for any deposited tokens). Therefore, if you ever deposited assets from outside the platform to the broker's platform, the broker lacks cost basis information for those tokens.
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This is one of the most widespread issues in crypto tax right now, and most people do not catch it until it is too late. An exchange can only calculate your cost basis if the exchange has all the necessary information, which is limited to purchases made directly on that platform using stablecoins or cash (or if you supplied the exchange with the cost basis of deposited tokens prior to sale). When you transfer assets in from a hardware wallet, a cold wallet, another exchange, or any decentralized platform, the exchange loses the thread on what you originally paid. Currently, we are seeing brokers either using a default assumption (reports zero basis), or leaving the field blank entirely. Any of those outcomes can make it look like you owe far more in taxes than you actually do. Reconstructing an accurate cost basis from your full transaction history across all platforms is one of the most important things a crypto tax professional does.
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This is where a lot of people get tripped up. Moving assets between your own wallets or accounts is not a taxable event, but it has a direct impact on the accuracy of your 1099-DA. When assets arrive at an exchange from an outside wallet, that exchange has no record of what you originally paid for them. It does not know when you bought them or at what price. So when you eventually sell, the exchange reports the proceeds accurately but applies a cost basis that is essentially a guess or left blank. The result is a 1099-DA that may show a large gain on paper even though your real gain, when your full history is factored in, is much smaller or even a loss. Anyone who has used cold storage, hardware wallets, DeFi protocols, or multiple exchanges needs to have their basis reconstructed properly before filing.
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Yes. And, you want to. Losses are valuable. Capital losses offset capital gains dollar for dollar, and up to $3,000 per year of a prior year's capital losses can offset your ordinary income in the current tax year. Any capital losses you cannot use in the current year carry forward indefinitely and can be used in future years. As such, reporting losses accurately is one of the best ways to reduce your overall tax bill.
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Yes. The 1099-DA data goes directly to the IRS from the exchange. Failing to report taxable activity that appears on a 1099-DA is the kind of thing that can generate automated flags on your filing, back taxes, penalties, and interest. In more serious cases, where deliberate non-reporting and non-payment of tax can lead to criminal liability. While the exact mechanics of IRS audit and enforcement remain complicated and opaque to those outside the Agency, the current landscape can be summed up as: A pro-crypto Administration, which is also pro-revenue collection. Digital asset-related tax collection and enforcement is a stated priority for the Agency, and this is unlikely to change as new informational reporting tools make collection and enforcement easier for the Agency.
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Yes. The IRS includes non-fungible tokens (NFTs) and other digital assets in the 1099-DA reporting framework. If you sold or exchanged an NFT through a brokered platform, that transaction can trigger a 1099-DA just like a cryptocurrency sale would. This applies to all NFTs regardless of what they represent, digital artwork, meme NFTs, collectibles, and everything else. There is no separate category for memes versus other NFTs. If it lives on a blockchain and was traded through a broker, it is treated as a digital asset sale. The key trigger is whether a broker was involved. Transactions executed entirely through your own private wallet with no exchange or brokered marketplace in the middle generally will not produce a 1099-DA, but you are still responsible for reporting the gain or loss on your return. NFTs sold on centralized platforms or brokered marketplaces are reportable, and brokers may use an optional aggregated reporting method for NFT sales rather than listing each one individually. Either way the tax obligation does not disappear.
Form 8949: Box Breakouts and Reporting Requirements
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Form 8949, Sales and Other Dispositions of Capital Assets, is where every individual crypto transaction gets formally reported. You list the date acquired, date sold, proceeds, cost basis, and the resulting gain or loss. Those totals then carry over to Schedule D. The 1099-DA gives you the raw numbers. Form 8949 is how those numbers make it onto your return.
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Each page of Form 8949 requires you to check a box indicating how the transactions on that page were handled by the broker. For tax year 2025, the two relevant boxes for digital asset taxpayers are Box H and Box I. They represent two very different situations, and the IRS expects them to be filed separately. You cannot mix them on one page.
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For this filing season, Box H and Box I cover the vast majority of digital asset transactions. Starting in 2026 and beyond, Box G will come into the picture as cost basis reporting by brokers becomes more complete. The IRS is rolling this out in stages, so the framework will get more detailed over time.
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More and more, yes. As CPAs get up to speed on the 1099-DA rules, many are starting to request transactions broken out by box rather than lumped together on a single schedule. The Network Firm prepares Form 8949 with proper box segregation as a standard part of every crypto engagement because it is the right way to file and it protects the client.
How The Network Firm Determines Box H vs. Box I
Not every crypto transaction gets treated the same way on Form 8949. An exchange may accurately report your gross proceeds, meaning the total value of what you sold, but that does not mean the cost basis or the resulting gain or loss is correct. For anyone who ever used a cold wallet, hardware wallet, DeFi platform, or multiple exchanges, the basis on a 1099-DA is almost always incomplete. The IRS wants transactions grouped based on whether a broker reported them and whether cost basis was included. Here is exactly how our team makes that determination for each client.
| BOX H | BOX I |
|---|---|
| When it applies: | When it applies: |
| The transaction was reported on a 1099-DA, but the exchange did not include cost basis when reporting to the IRS. | The transaction was not reported on any 1099-DA or 1099-B. No broker reporting exists at all. |
| Examples: Coinbase, Kraken, Gemini trades where basis is missing or flagged as not reported | Examples: DeFi protocols, cold wallets, hardware wallets, River accounts, DEX trades, peer to peer transfers |
| Data source: 1099-DA received from the exchange | Data source: Client records, wallet history, blockchain data, reconstructed cost basis |
Our Classification Process
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We pull together every 1099-DA the client received across all exchanges and build a complete picture of which accounts and transactions have broker reporting attached to them.
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Using the client's full transaction history from exchanges, wallets, and DeFi platforms, we tag each transaction by where it came from. Centralized exchanges get treated differently than self-custody wallets or on-chain activity.
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We match each transaction against the 1099-DAs on file. Trades that appear on a 1099-DA but are missing cost basis go to Box H. Transactions with no 1099-DA at all, including cold wallet activity, River accounts, DEX trades, and peer to peer transfers, go to Box I.
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Box I transactions especially tend to require basis reconstruction. We use on-chain records, exchange export files, and blockchain data to establish what the client actually paid. Getting this right keeps taxable gain accurate and reduces audit exposure.
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Box H transactions go on their own Form 8949 pages. Box I transactions go on separate pages. Both feed into Schedule D with the correct designations. The result is a clean, well-documented package that your CPA can file with confidence and that lines up with what was reported at the broker level.
⚠️ Why This Matters ⚠️
Getting the box wrong is not a minor formatting issue. The IRS receives 1099-DA data directly from exchanges and uses it to match against filed returns. A mismatch between what an exchange reported and what shows up on Form 8949 is the kind of thing that triggers a notice. Box level accuracy is something we take seriously in every reconciliation we deliver.
Q: How does The Network Firm fit into the process?
The Network Firm specializes in digital asset data reconciliation for individuals, funds, and businesses. We are not a tax preparation or return filing firm. Our role is to get your data right before it ever reaches a CPA. We work alongside a network of CPAs who handle the actual return filing, and our job is to hand them something accurate and defensible to work with.
Our engagements include full 1099-DA reconciliation, cost basis reconstruction across all exchanges and wallets, and Form 8949 preparation with proper box level segregation. We are software agnostic and work with a variety of crypto tax platforms to aggregate transaction history using a by-wallet approach, which gives us the most accurate picture of what was actually acquired and disposed of and at what cost.
Where the software does not automatically capture everything, we make and document manual adjustments. Those adjustments are summarized in a tax memo that we provide alongside the reconciled data. This memo is not a tax opinion letter. It is a clear written record of the methodologies and manual decisions applied to your data, so your CPA has full context when preparing and filing your return; and, if you ever experience an IRS audit, you have an additional record showing your good-faith approach to compliance with IRS Regulations.
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Author Bio:
Wesley Barton is experienced in CFO-advisory projects providing outsourced finance services to companies in the cryptocurrency space. With extensive knowledge of strategic financial planning, financial reporting, and compliance, Wesley Barton offers valuable insights and solutions to help businesses thrive. Connect with The Network Firm on LinkedIn or X/Twitter for more expert advice.
The Network Firm is a CPA firm providing digital asset data reconciliation and reporting services; currently, we do not prepare or sign tax returns. This document is for general informational purposes and does not constitute tax advice, legal advice, or a tax opinion letter. All return preparation and filing should be performed by self-filing, or by your licensed CPA or tax professional. The information presented here reflects general industry guidance and may not apply to your specific situation.