Key takeaways

• Using privacy coins like Monero can increase the burden of proof for taxpayers during audits.
• 2025 is expected to be a particularly complicated year for crypto tax reporting.
• The new 1099 D-A form requires users to match their self-reported data with exchange information.
• Taxpayers are advised to wait for their 1099 D-A form before filing to avoid discrepancies.
• The reported number on tax forms for crypto transactions represents total sales proceeds, not actual gains.
• Exchanges often do not report the cost basis, leaving taxpayers to calculate it themselves.
• The IRS now requires specific allocation of basis for crypto held across different wallets.
• The wallet-by-wallet accounting method reduces tax flexibility for crypto transactions.
• Exchanges will soon be required to include cost basis information for tax reporting.
• Different accounting methods like FIFO and LIFO are still applicable for crypto taxes.
• Using HIFO can help defer taxes on crypto gains.
• Liquidations on leveraged positions in crypto are treated as capital losses for tax purposes.

Guest intro

Laura Walter is the Founder and CPA of Crypto Tax Girl, the first tax firm in the US solely dedicated to crypto taxation. She previously worked at EY on the Global Mobility tax team, specializing in individual tax compliance for expats, before leaving during the 2017 crypto bull run to launch her firm. She holds a master’s degree in taxation from BYU and has been involved in crypto since 2014.

The burden of proof with privacy coins

• Using privacy coins like Monero increases the burden of proof for taxpayers during audits.
• “If you were audited and the IRS sees that you were using these privacy coins like Monero, there’s just a higher burden of proof on taxpayers to show their record keeping.” – Laura Walter
• Privacy coins complicate tax reporting due to the lack of transaction history.
• “These get tricky because if you were audited, the IRS sees that you were using these privacy coins like Monero.” – Laura Walter
• All crypto transactions are taxable and reportable, regardless of where they occur.
• “Even if it’s not on the 1099 D-A, it’s still taxable and reportable.” – Laura Walter
• The IRS’s new wallet-by-wallet accounting method reduces tax flexibility.
• “Now that it’s wallet by wallet, you have less flexibility.” – Laura Walter
• The IRS’s wallet-by-wallet approach may be designed to increase transparency in crypto transactions.

Complexity in 2025 crypto tax reporting

• 2025 will be a complicated year for reporting crypto taxes.
• “I think 2025 is set up to be one of the most complicated years for reporting crypto taxes.” – Laura Walter
• The new 1099 D-A form requires users to match their self-reported data with exchange information.
• “You have to also match it up to this new 1099 D-A form.” – Laura Walter
• Taxpayers should wait to file until they receive their 1099 D-A to avoid discrepancies.
• “If you are expecting to receive one of these, definitely wait to file your taxes until February 17.” – Laura Walter
• Calculating cost basis for crypto taxes is complex due to new IRS requirements.
• “The IRS is requiring that everybody move from a universal method of accounting to a wallet-by-wallet method.” – Laura Walter
• Many individuals will need to recreate their entire transaction history to report their cost basis.
• “They need to calculate their cost basis for all years and recreate their history.” – Laura Walter

Understanding the new IRS requirements

• The IRS now requires specific allocation of basis for crypto held across different wallets.
• “You would have to only look at the Bitcoin that’s currently on Coinbase when you determine what to sell.” – Laura Walter
• The new method of managing crypto basis across multiple wallets may be better in the long run.
• “I feel like it will be maybe better in the long run, but it is a big change.” – Laura Walter
• The IRS’s wallet-by-wallet accounting method reduces tax flexibility for crypto transactions.
• “You have less flexibility there.” – Laura Walter
• Exchanges will be required to include cost basis information for tax reporting.
• “Next year, exchanges are going to be required to include your cost basis on it.” – Laura Walter
• There is an ongoing policy discussion about requiring exchanges to share cost basis information.
• “There’s this big policy discussion going on called CARF.” – Laura Walter

Challenges in crypto tax reporting

• The unique nature of crypto transfers complicates tax reporting.
• “Crypto is unique in that you can easily transfer, so it gets trickier.” – Laura Walter
• Different accounting methods for crypto taxes, such as FIFO and LIFO, are still applicable.
• “You can actually choose any of those HIFO, LIFO, FIFO.” – Laura Walter
• Using HIFO can help defer taxes on crypto gains.
• “Highest in first out will definitely decrease your total tax the most.” – Laura Walter
• Married couples in the US can have up to $131,000 in long-term capital gains tax-free.
• “If you’re married and you live in the US, you can have $131,000 of capital gains tax-free.” – Laura Walter
• Using crypto tax software can help ensure accurate cost basis allocation.
• “I would recommend using a crypto tax software.” – Laura Walter

Managing crypto tax obligations

• It’s advisable to store low-cost basis assets in wallets intended for long-term holding.
• “Put your lowest cost basis on wallets that you’re not planning on touching for a while.” – Laura Walter
• When transferring crypto between wallets, the cost basis transfers as well.
• “You take the oldest one on there, look at the cost basis of that, and transfer it.” – Laura Walter
• There is hope that tax reporting for crypto will become simpler in the future.
• “They’re saying next year it’ll have cost basis, so that’ll be easy.” – Laura Walter
• Crypto transactions can result in taxable events not always captured by exchange reports.
• “If you use crypto to buy something, those won’t show up on the 1099 D-A’s.” – Laura Walter
• Choosing a consistent crypto tax software is crucial for accurate reporting.
• “Choose the one you want to use and then probably just try and stick with it year to year.” – Laura Walter

Rebuilding transaction history

• Rebuilding transaction history in crypto requires thorough data reconciliation.
• “You definitely just want to start by importing everything that you have into one spot.” – Laura Walter
• Many users may lose access to exchanges, complicating their ability to retrieve transaction history.
• “There might be some exchanges that you no longer have access to.” – Laura Walter
• Using APIs for crypto tax calculations can significantly streamline the process.
• “Use APIs when you can; they can’t access your crypto or anything like that.” – Laura Walter
• It’s crucial to keep different types of financial activities separate for tax purposes.
• “Keep business, personal, and any sort of retirement trust separate.” – Laura Walter
• Mixing personal and business crypto transactions can lead to tax liabilities.
• “You really need to make sure you do not mix that with any sort of personal business.” – Laura Walter

Tax treatment of stablecoins and futures

• Stablecoins are treated the same as all other crypto for tax purposes.
• “Stablecoins are just treated the same as all other crypto.” – Laura Walter
• Stablecoins are currently treated as property for tax purposes.
• “Right now, it is treated like property.” – Laura Walter
• Crypto futures are reported differently for tax purposes compared to regulated futures.
• “Most crypto futures don’t qualify to be 1256 instruments.” – Laura Walter
• Depositing crypto into prediction markets is considered a taxable event.
• “When you deposit crypto into Polymarket, you’re technically spending that crypto.” – Laura Walter
• All crypto activities, even those on decentralized exchanges, are taxable and reportable.
• “These technically are all still taxable reportable on your return.” – Laura Walter

Tax implications of gambling and prediction markets

• The tax code requires gambling wins and losses to be reported separately.
• “If you had a win, you report it on one spot, and if you had a loss, you report it on the other spot.” – Laura Walter
• The tax treatment of gambling losses is set to become more restrictive in 2026.
• “In 2026, the bill limits gambling losses to now 90% of winning.” – Laura Walter
• Reporting gains and losses on crypto ETFs and DATS is easier than on traditional crypto transactions.
• “These ones are easier than the 1099 D-A’s because you’ll get a 1099 B.” – Laura Walter
• Wash sale rules do not currently apply to crypto transactions, allowing for loss harvesting.
• “In crypto, this doesn’t apply yet; there’s been proposals, but as of right now, it does not apply.” – Laura Walter
• Loss harvesting in crypto allows individuals to offset gains with losses.
• “Even just decreasing your gains at the end of the year is great if you use this loss harvesting.” – Laura Walter

Tax responsibilities and deductions

• Tax law holds individuals responsible for gains and losses from crypto activities, even if a bot executed the transactions.
• “Just because a bot did it doesn’t mean that you’re not still responsible for it.” – Laura Walter
• Most crypto-related expenses are deductible unless one qualifies for tax trader status.
• “Most crypto expenses are deductible unless you qualify for tax trader status.” – Laura Walter
• Airdrops must be reported as income based on their value at the time of receipt.
• “If you receive an airdrop, you have to include whatever the value was at the time you received it as income.” – Laura Walter
• The taxable event for ICOs occurs when you send crypto to purchase them.
• “When you send your crypto to buy the ICO, that’s when I treat it as the taxable event.” – Laura Walter
• If an ICO fails and you do not receive the tokens, the investment can be treated as a capital loss.
• “Whatever you had originally sent, I treat that as a worthless investment loss.” – Laura Walter

Tax strategies and future legislation

• Mining rewards are considered income and should be reported based on their value at the time of receipt.
• “You’re supposed to include your mining rewards as income on the day you receive them.” – Laura Walter
• Expenses related to mining can be deducted against mining income on tax returns.
• “All of those are deductible against your mining income.” – Laura Walter
• Staking rewards are also subject to income tax similar to mining rewards.
• “Staking rewards are all subject to income tax.” – Laura Walter
• Staking rewards should ideally be taxed only when sold, not when received.
• “There’s this guy that was fighting to have his staking rewards included as income when they’re sold.” – Laura Walter
• There is potential for legislative changes regarding the taxation of mining and staking rewards.
• “The Parity Act and the Loomis bill are kind of fighting for instead to have mining and staking rewards not included in your income until they’re sold.” – Laura Walter