How to avoid 5 common 1099-DA tax filing mistakes
Oct 20, 2025・6 min read
IRS Form 1099-DA overhauls the way exchanges report crypto transactions. It mirrors Form 1099-B, which stock brokerages use, and requires custodial exchanges to report dispositions of digital assets to the IRS starting with transactions in tax year 2025 (filed in 2026).
However, this form isn’t a complete account of your taxable crypto activity, and it shouldn’t be used in place of your personal records. Relying exclusively on 1099-DA forms could lead to overpaying on your taxes.
This article covers the most common 1099-DA tax filing mistakes that may lead to overreported gains, or in some cases, IRS scrutiny, and offers tips to help you avoid them.
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5 common mistakes when reporting 1099-DA forms
The IRS has increased its focus on crypto tax compliance, and the 2025 tax year will be the first year that they have visibility into all taxable dispositions at custodial U.S. exchanges. This means that investors must ensure they report every disposition on a 1099-DA or risk catching the eye of the IRS. Despite this, 1099-DAs will not provide all the information required to file, and solely relying on them may lead to overpayment of taxes. As such, crypto taxpayers will have to balance complete 1099-DA reporting with ensuring accuracy of gains and losses reported on their individual income tax returns.
Here are some of the most common mistakes when reporting the new 1099-DA form.
1. Assuming everything’s included on Form 1099-DA
Not every taxable event is reported on a Form 1099-DA. The IRS’s new digital asset reporting rules apply only to U.S. custodial brokers, meaning transactions that occur off-platform, peer-to-peer, or through DeFi protocols will often fall outside a broker’s reporting scope.
Examples of transactions that may be taxable to you but excluded from broker reporting include:
- Stablecoin sales and trades that qualify under the IRS’s limited reporting thresholds, such as exchanges between stablecoins or sales under $10,000, as well as sales of stablecoins for other digital assets.
- Specified NFT sales that fall below the $600 aggregate threshold.
- Lending and wrapping transactions that are currently covered by temporary exclusions in IRS Notice 2024-57.
- Transfers or payments where crypto is used directly to purchase goods or services, since the broker only records a withdrawal.
Also, note that brokers are required to send 1099-DA forms to customers and the IRS beginning with transactions in tax year 2025. However, they aren’t required to report cost basis for sales of covered digital assets on this form until tax year 2026. This means that if you rely solely on Form 1099-DA, you could understate your cost basis and overstate your gains, leading to a higher crypto tax bill, even if your trading resulted in a loss.
Because these gaps exist, the Form 1099-DA you receive is unlikely to represent your complete crypto activity or accurate cost basis. You’ll need to maintain your own records and reconcile them carefully when preparing your tax return. Failure to do so could leave your reporting incomplete and increase the risk of IRS notices or overpayment of taxes.
2. Failing to report certain types of income
Another common pitfall is not properly reporting income earned from staking, mining, airdrops, or other digital asset rewards. These activities create taxable ordinary income at the time the assets are earned and the taxpayer has “dominion and control,” based on their fair market value, even though they aren’t reported on Form 1099-DA.
If you earn $600 or more from a U.S. custodial exchange, you’ll typically receive Form 1099-MISC. However, even earnings below $600 must be reported under Schedule 1, Line 8v (“Digital assets received as ordinary income”) for the applicable tax year.
In addition, earning crypto can also create two separate taxable events, which often confuses investors.
- When you receive the asset, it is taxed as ordinary income based on fair market value.
- When you later dispose of the asset, it is taxed as a capital gain or loss based on any change in value since receipt.
Because income-type transactions generally lack broker cost-basis reporting, it’s important to maintain your own records so you can establish basis when those assets are eventually sold or exchanged.
3. Misclassifying short and long-term gains
When reporting crypto disposals, it’s essential to correctly classify each gain or loss as short-term or long-term based on your holding period. Short-term capital gains (on assets held one year or less) are taxed at ordinary income rates, up to 37%. Long-term capital gains qualify for preferential tax rates, ranging from 0% to 20% depending on your taxable income.
The key difference is the holding period, which begins the day after you acquire the asset and ends on the day you dispose of it. Investors often lose track of acquisition dates, which can lead to incorrect reporting on Form 8949 and overpayment on taxes. Maintaining accurate transaction records and wallet histories ensures each disposition is categorized correctly and that you receive the proper tax treatment.
4. Overlooking small or low-value transactions
It’s easy to dismiss small crypto transactions as insignificant, but they can still affect your overall tax calculation. However, regardless of the amount, the IRS expects you to report every taxable crypto transaction. This includes DeFi swaps, Web3 game microtransactions, and using crypto to buy goods and services.
While there is currently no de minimis exemption for small crypto transactions, the cumulative impact of many low-value trades can lead to inaccurate gain or loss reporting. Inconsistent reporting may also create discrepancies with the data the IRS receives from exchanges and brokers under the new 1099-DA framework.
Maintaining complete transaction records, even for small, routine transfers, helps ensure accurate reporting and minimizes audit risk.
5. Filing late or not at all
Don’t avoid filing your taxes. Even if you can’t pay, you can reduce the penalties significantly by filing on time. Missing the deadline triggers a failure-to-file penalty of 5% per month, up to a maximum of 25% of the unpaid tax. A separate failure-to-pay penalty may also apply, though at a lower rate of 0.5%, also capped at 25% of the unpaid tax.
For crypto investors, timely filing is critical as the IRS expands digital asset reporting. Filing late, even with minor discrepancies, can increase the likelihood of receiving a notice or IRS inquiry.
What happens if you report Form 1099-DA incorrectly?
If a broker makes an error on your 1099-DA form, you can request a corrected form, though many platforms may be unable or unwilling to amend prior reports. In most cases, you can simply adjust the 1099-DA reported amounts to report the correct figures on your own return, using your books and records as substantiation.
If you’ve already filed using incorrect information, you may need to file an amended return (Form 1040-X) to correct the error. Always retain detailed documentation that supports your amendments.
Discrepancies between your Form 1099-DA and your tax return may trigger automated IRS matching notices, such as:
- CP2000 notices: These are issued when the IRS receives information from third parties, like exchanges, that doesn’t match what was reported on your tax return.
- Accuracy-related penalties: The IRS may assess an additional 20% penalty on any underpaid tax due to negligence or substantial understatement of income tax.
- Interest: Accrues daily on any tax due, and on assessed penalties, beginning from the original due date of the return until the balance is paid in full.
- Audits: While many mismatches are resolved through correspondence, certain red flags, such as large unreported proceeds, patterns of underreporting, or issues uncovered during a CP2000 review, can lead the IRS to open a broader examination.
Avoid common 1099-DA tax filing mistakes with CoinTracker
The introduction of Form 1099-DA marks a major shift in the IRS’s crypto tax enforcement. Investors will need to keep detailed records of their transactions as the IRS tightens reporting requirements.
Yet many 1099-DA forms include incomplete reporting details. While these forms are a helpful tool, relying solely on them could be a costly mistake.
Worried about reporting your crypto taxes? CoinTracker makes it simple. Join over 2 million users who trust us for hassle-free tax reporting. Start for free today!
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.
FAQ
Should I report trades that don’t appear on the 1099-DA?
Yes. You’re required to report all taxable crypto transactions, even if they don’t appear on your Form 1099-DA. This includes off-platform trades, DeFi activity, self-custodied wallet transactions, and certain stablecoin or NFT sales that fall outside broker reporting. These transactions remain taxable to you, even though no information return is issued to the IRS.
What should I do if my 1099-DA is incorrect?
First, verify the information against your own transaction records. If your Form 1099-DA appears inaccurate, you can request a corrected form from the broker. If they don’t amend it, you should still include the 1099-DA on your return to match IRS records, but adjust the reported amounts as needed based on your own documentation. Ignoring the form entirely is likely to result in an IRS notice.
If you’ve already filed using incorrect information, you may need to submit an amended return (Form 1040-X) to correct it. Always keep detailed records that substantiate your calculations.
Can I get audited for crypto taxes?
Yes. Crypto activity is subject to the same audit and enforcement procedures as any other income. The likelihood of an IRS inquiry increases with high trading volume, large unreported gains, or mismatches between your tax return and third-party data such as Form 1099-DA. The IRS also uses blockchain analytics tools to identify potential underreporting.
How long do I have to file a corrected return?
Generally, you have three years from the date you filed your original return (or two years from the date you paid the tax, if later) to file an amended tax return using Form 1040-X.