The 7-step crypto tax workflow every CPA needs for Form 1099-DA season

Jan 21, 2026・9 min read

tl;dr

The era of "guessing" is over. With Form 1099-DA, the IRS expects professional-grade reconciliation, not just spreadsheet estimates.
Ad-hoc workflows lead to unbilled hours, missed cost basis, and audit failures.
Implement a 7-step "Crypto tax software" workflow that treats 1099-DA as a data input, not a final return.
Use technology to normalize disparate data sources (wallets, exchanges, DeFi) into a single audit-ready format.

Stop treating every crypto client as a one-off

For years, accounting firms have treated cryptocurrency clients as "special projects." A senior manager scrambles to find a CSV converter, a junior staffer spends 10 hours formatting Excel columns, and the partner prays the final number is reasonable.

This isn't sustainable.

With the introduction of Form 1099-DA (beginning with 2025 transactions, reported in early 2026) and increased IRS scrutiny of digital asset reporting, crypto tax preparation has moved from niche hobby to core compliance.

Firms that continue to wing it face two risks:

Unbilled manual work resulting in margin erosion and
Indefensible positions leading to IRS scrutiny

The following is a standardized, repeatable workflow designed to turn crypto tax preparation from a chaotic headache into a profitable, scalable service line.

Step 1: Intake and triage

You cannot price or staff a crypto engagement until you know the shape of the data. Use your organizer to force disclosure early.

The must-ask discovery questions

Don't just ask, "Did you trade crypto?" Clients often say "no" because they only held or staked. Instead, ask:

"Did you exchange, sell, or transfer any digital assets?"
"Did you use any self-custody wallets (e.g., Ledger, MetaMask) or Decentralized Finance (DeFi) apps?"
"Did you receive any rewards, airdrops, or compensation in crypto?" (This creates ordinary income, not just capital gains)
"Which exchanges did you use?" (Distinguish between U.S. custodial exchanges like Coinbase, Kraken, and Gemini versus non-U.S. exchanges like KuCoin or Binance.com that won't issue 1099-DA forms)

Complexity classification

Assign a complexity score immediately to determine pricing and staffing.

Simple: One U.S. custodial exchange (e.g., Coinbase only). No transfers out. 1099-DA substitute statement provides complete data, even for noncovered assets. Fewer than 50 transactions.
Moderate: 2-3 exchanges (mix of U.S. and potentially non-U.S.). Some self-custody transfers. Passive staking creating ordinary income. 50-500 transactions.
Complex: High volume (>500 txns). DeFi usage (Uniswap, Aave) with potential liquidity pool activity. NFTs. Cross-chain bridging. Multiple income-generating activities (staking, mining, lending). Requires specialized crypto tax software to track all taxable transactions and reconcile acquisition information.

Critical distinction for 2025 vs. 2026+:

2025 transactions (reported in 2026): All digital assets are noncovered. Brokers report gross proceeds only. Cost basis reporting is optional. Some brokers may include acquisition information where available on the customer substitute statement.
2026+ transactions: Cost basis reporting becomes mandatory for covered assets (acquired on or after January 1, 2026, and held continuously in the same custodial account). Transferring assets results in the assets becoming noncovered, thus needing to reconcile acquisition information.

Step 2: Data collection and normalization

The goal here is to move from documents to data. Let’s explore what we mean by that below:

The pillars of data

You need more than just the tax forms. Request a comprehensive "Digital Asset Export":

Forms: All 1099-DA (from U.S. custodial brokers only), 1099-MISC (for ordinary income payments), and any 1099-B forms (if any traditional securities were involved).
APIs/CSVs: Native transaction history exports from every exchange used (even if closed mid-year), including both U.S. custodial exchanges and non-U.S. platforms that won't issue 1099-DA. Prefer APIs as they have less margin for error and use CSVs if APIs are not available.
Public Addresses: The public keys (e.g., 0x... for Ethereum, bc1... for Bitcoin) for every self-custody wallet used during the year.

Understanding Form 1099-DA data

Form 1099-DA will include:

Customer identification (name, address, TIN)
Asset name and DTIF (Digital Token Identifier Foundation) identifier
Quantity of units disposed
Disposition date
Gross proceeds
For covered assets (2026+): acquisition date, cost basis, gain/loss, and gain/loss classification
Box 9: When sales are reported as “Cost basis is not reported to the IRS. Report on Form 8949 Part I with box H checked for ST (or Part II with box K checked for LT)” this indicates that the asset is noncovered and acquisition information was not reported to the IRS.

Important: If cost basis is missing or unavailable, reputable brokers will report it as "unknown" or leave the field blank—NOT as "$0.00." A reported basis of $0.00 means the broker is affirmatively stating zero basis, which would result in overstated gains. Truly missing basis appears differently on the form.

Normalization

This is where manual workflows break. One exchange lists Bitcoin as "BTC," another as "XBT." Timestamps vary between UTC and EST. Transaction types are labeled inconsistently ("Trade" vs. "Swap" vs. "Exchange").

Attempting to normalize these CSVs in Excel is a recipe for disaster. A dedicated platform like CoinTracker automates this by connecting directly to APIs and blockchains, standardizing every transaction into a uniform 'Date | Type | Asset | Amount' format instantly.

Key technical challenge: For noncovered assets (especially relevant for 2025 transactions and transfers), you'll need acquisition information from the client’s books and records to establish accurate cost basis.

Step 3: Reconciliation and gap Analysis

This is the most critical step for risk mitigation. You must prove the chain of custody.

The cash balance check

Compare the calculated ending balance in your software against the client's actual holdings.

Software says: Client owns 2.5 BTC.
Client wallet says: Client owns 2.0 BTC.
The Gap: 0.5 BTC is missing. Was it sold? Spent? Lost? This gap may indicate that other taxable events may be missing from the data.

Identifying orphaned costs

An orphaned cost happens when a client sells an asset on Exchange B that was bought on Exchange A, but the transfer between them wasn't recorded. Exchange B may report the sale with missing or unknown cost basis, potentially inflating the tax bill if the missing cost basis is overlooked.

Review all Incoming Transfers to ensure they are linked to a corresponding Outgoing Transfer. If not, ask the client for the missing source wallet. You can use a block explorer to identify the public address of the source wallet in question and reconstruct the acquisition information.

Handling exempt transactions

Be aware that certain transactions may be taxable to the client but exempt from Form 1099-DA reporting:

Qualifying stablecoin exemptions: Sales or exchanges totaling ≤$10,000 per customer per year, or stablecoin-to-non-stablecoin exchanges
Specified NFT exemptions: Sales where annual proceeds don't exceed $600
Temporary exclusions (Notice 2024-57): Certain lending and wrapping transactions
Off-platform dispositions: Using crypto to pay for goods/services when the broker records withdrawal, not sale. Note that brokers classified as processors of digital asset payments would report payment activity.

These transactions may be taxable and require reporting on the client's return even without a 1099-DA.

2025

Crypto Tax
Guide is here

CoinTracker's definitive guide to Bitcoin & crypto taxes provides everything you need to know to file your 2024 crypto taxes accurately.

Learn more

Step 4: Apply tax methodologies and positions

Once the data is clean, apply the tax logic.

Classifying income vs. capital gains

Your firm must distinguish between ordinary income events and capital gain/loss events (and apply this consistently):

Ordinary income events (Schedule 1 or Schedule C if the income is generated in a trade or business):

Staking rewards: Taxed as ordinary income upon receipt at fair market value (per Rev. Rul. 2023-14)
Mining rewards: Ordinary income (or self-employment income if business activity)
Airdrops: Generally ordinary income when received (if you have dominion and control)
Other income or yield such as rewards earned on any platform.

Capital gain/loss events (Schedule D):

Sales of digital assets
Exchanges of one digital asset for another
Using crypto to purchase goods or services

Classifying the gray area transactions

Document your firm's standard position on unclear transaction types (and apply it consistently):

DeFi liquidity pools: Is the deposit a taxable disposal or a non-taxable transfer? (Conservative approach: Taxable swap. Aggressive approach: Non-taxable deposit, tax deferred until withdrawal)
Wrapped tokens: Is swapping ETH for wETH a taxable trade? (Conservative approach: Yes, it's a disposition. Aggressive approach: No, it's a representation of the same asset)
Staking derivatives: Is staking ETH and receiving stETH an immediate taxable event?
- In regards to staking income: Is staking income taxable upon receipt or only upon disposition? While Rev. Rul. 2023-14 indicates it’s taxable upon receipt, some practitioners have taken the position that it should only be taxable upon disposition.

Step 5: Generate tax outputs and workpapers

Don't just fill out the 8949. Build a defense file.

The primary outputs

Form 8949 / Schedule D: The final capital gains and losses report
Schedule 1 (or Schedule C): Ordinary income from mining, staking, airdrops, or consulting payments in crypto
Form 8949 reconciliation: If amounts differ from Form 1099-DA due to acquisition information from the client’s books and records

The tax software workpapers

Save a transaction-level report that ties back to the filed return. CoinTracker automates the tracking of all reporting needs.

Date acquired vs. date sold: Proving long-term vs. short-term status
Cost basis source: Linking the specific lot sold to its original purchase, including:
- Original purchase transaction hash (if on-chain) - if in doubt, exchange records and/or bank transfers should show this.
- Exchange and account where acquired
- Whether covered or noncovered
- Source of acquisition information for noncovered assets
FMV at receipt: Evidence for ordinary income recognized from staking/mining/airdrops
Transfer documentation: Proof that transfers between wallets/exchanges are non-taxable movements, not sales

Handling 1099-DA discrepancies

When your calculated amounts differ from Form 1099-DA (common for noncovered assets), you must:

Report the 1099-DA amounts on Form 8949 in the appropriate columns
Document any adjustments to 1099 reported amounts
Maintain supporting documentation in workpapers

Step 6: Review, sign-Off, and filing

The reasonableness check

Before filing, perform a high-level logic check:

Does the reported income and gains justify the lifestyle? (e.g., Millions in crypto sales but minimal reported gains?)
Are there massive losses? While wash sale rules don't currently apply to crypto, document loss positions clearly in case future guidance applies retroactively or if economic substance doctrine is invoked
Do noncovered transactions have reasonable basis documentation? This is critical for audit defense

Client education

Use the review session to reset expectations and justify your fee for a complex crypto return.

"We did not just copy your 1099-DA. We reconstructed your portfolio using acquisition information from your external wallets to find $40,000 in missing cost basis that the form didn't capture. This saved you approximately $8,000 in tax."

Step 7: Retention, audit readiness, and ongoing support

The forever file

Unlike bank statements, crypto data can be lost if an exchange shuts down (e.g., FTX, Celsius). Therefore it's best practice to download and store the raw data and the calculated software export permanently because if the client sells that Bitcoin 10 years from now, they will need to prove the basis established today.

Critical for covered assets (2026+): Maintaining continuous documentation is essential. If a client acquired assets in 2026 as covered and later transfers them (breaking covered status), you need historical records to document your cost basis.

Retention requirements include:

All 1099-DA forms (from U.S. custodial brokers)
All CSV exports from exchanges (U.S. and non-U.S.)
Public wallet addresses and transaction histories
Acquisition information for all assets
Fair market value sources used for income recognition
Contemporaneous records of cost basis methodology elections
Documentation supporting treatment of gray-area transactions
Documentation of client’s overall crypto usage
Documentation of each exchange / wallet used
API / CSVs / wallet addresses incorporated
Software outputs
Any manual adjustments - add a note for why.
All reports generated (capital gains report, income report, activity report).

Ongoing monitoring

Shift the client to a monthly or quarterly crypto tax planning engagement:

Monitor accumulating gains/losses for estimated tax purposes
Track ordinary income from staking/mining for quarterly estimates
Alert clients before year-end about tax-loss harvesting opportunities
Prepare for 2026+ covered asset tracking requirements
Update acquisition information documentation as assets move between platforms

Preparing for 2026 and beyond

Starting January 1, 2026, covered asset tracking begins. Help clients understand:

Assets acquired and held continuously in custodial accounts = covered (full basis reporting)
Any transfer out breaks the covered chain = noncovered (requires customer acquisition information)

Profitability through standardization

The difference between a firm that dreads crypto season and one that profits from it is the 7Ps of planning: Proper Prior Planning Prevents Pitifully Poor Performance. Process and preparation can ensure your firm is setup to profit from the upcoming crypto season.

If you rely on manual entry and client emails, you will drown in the volume of data 1099-DA brings. But if you adopt a software-first workflow with proper software tools, you turn a regulatory burden into a high-value advisory service.

Key differentiators for your firm

Position your crypto tax service as:

"We don't just copy forms—we reconcile across all platforms including non-U.S. exchanges"
"We handle both capital gains AND ordinary income from staking, mining, and DeFi"
"We're prepared for the 2026 covered asset transition"
"We maintain audit-ready documentation with complete acquisition information"