Crypto investors who don’t fill out this new tax form the right way could overpay on their taxes

Cryptocurrency exchanges are moving to a new way of reporting users’ profits to the IRS — and the switch could expose investors to a steeper tax bill if they aren’t careful.

A tax form that’s more than four years in the making is finally here for the 2026 filing season. It’s called the 1099-DA (the “DA” stands for “digital asset”) and crypto investors can expect to receive the form from exchanges such as Coinbase COIN and Robinhood HOOD. But the form only tells half the story to the Internal Revenue Service — and that means crypto investors will have to do some legwork to avoid overpaying on their taxes.

This tax season, the forms will show crypto investors and the IRS the amount of proceeds that a user received last year. But the form won’t include the starting point, known as the cost basis, on those transactions.

If crypto investors want to avoid overpaying on their taxes, they’ll have to provide the cost basis themselves. If they can’t offer those numbers, the IRS may just decide to tack on extra capital-gains taxes.

“This is a real, legitimate threat,” said Lawrence Zlatkin, vice president of tax at Coinbase. “I don’t think customers like to overpay.”

Crypto exchanges have to send the forms to taxpayers by Tuesday, Feb. 17, according to the IRS.

It’s a touchy time for crypto. Bitcoin’s BTCUSD value broke records last year, and some investors likely sold in order to reap profits. But as bitcoin’s value has plunged in early 2026, these same investors can ill afford a higher-than-necessary tax bill.

Suppose an investor bought a piece of bitcoin for $50,000 and then sold it for $100,000 more than a year later. If they made enough money to be taxed 15% on their capital gains, they would pay a $7,500 tax on their profits. But if they cannot supply the cost basis, the IRS could mark the purchase price as $0 and tax the entire $100,000 sum. That’s a $15,000 bill.

When IRS computers sync the forms they already have with the numbers supplied on a return, their default move is marking $0 for a missing cost basis, Zlatkin said. “There is no game of chance here; the system is designed to flag these data gaps and shift the burden of proof onto the taxpayer,” he said.

Take a breath.

Finding cost-basis data can be straightforward in some instances. For example, if a purchase and sale occurred on platforms like Coinbase and Robinhood, these exchanges say they can provide users the needed data.

But it may be more difficult in some cases. People often shift between wallets and exchanges. In that case, exchanges like Coinbase and Robinhood say they can’t trace back the cost basis because of the holding’s circuitous route.

“Typically, people have tons and tons of sources,” said David Zareh, partner and co-founder of OnChain Accounting, which specializes in crypto-related taxes.

The challenge for investors is “the fragmentation of transactions” as the asset darts around different exchanges and wallets, Zareh said. Along the way, exchanges may have closed and people may have forgotten about digital wallets or keys to those wallets. Scams may have happened too. “It leaves many with a broken trail,” he said.

The best advice is to do the research and get organized now, Zareh said. Another option is to hire experts who can reconcile a crypto portfolio to track down cost basis, he said. The process costs money, and investors are debating what’s a good price on forums like Reddit. But the cost may be worth it.

Fighting with the IRS after filing a tax return is not efficient or pleasant, Zareh noted. “You could do it the right way and not have the possibility of things blowing up in your face,” he said.

The IRS says the tax form gets triggered several ways. That includes when the digital asset is traded for another digital currency or when it’s sold for cash or foreign currency. Using crypto to pay broker transaction costs counts as a taxable event, the IRS said. Trading the crypto for goods and services counts as well. If total sales of qualifying stablecoin USDTUSD are under $10,000, they will not be reported on the form.

Taxpayers still have to report income, gains or losses, even if it doesn’t show up on the 1099-DA form, according to the IRS.

Not all crypto moves will trigger the form or a tax obligation. One example is shifting tokens from one wallet to another.

The IRS is still getting up to speed with cryptocurrencies like bitcoin, ether ETHUSD and solana SOLUSD. The 1099-DA is the next step in the IRS’s quest to determine how much taxable income is out there on the blockchain — and make sure investors are paying their bill.

The 1099-DA was created as part of the $1.2 trillion Bipartisan Infrastructure Law of 2021, despite the objections of the cryptocurrency industry. With better visibility into crypto holdings, the form could generate approximately $28 billion in revenue over a decade, according to a Joint Committee on Taxation estimate.

Crypto exchanges may have previously reported the income to investors and the IRS in a variety of ways. The 1099-DA is standardizing the approach. The industry has needed time to build that reporting ability, Coinbase’s Zlatkin said. The fact that the 2025 forms show proceeds only is a nod to the difficulties phasing in the tax form’s requirements, he noted.

“It’s really challenging to do this for billions of transactions,” Zlatkin said, adding: “It’s going to be a test year. We are trying to do the best we can.”

A Robinhood spokesperson said the company can help with basic questions like finding the form, but it can’t offer tax advice. “We encourage customers to consult a qualified tax professional to understand how the information provided applies to their individual situation,” the spokesperson told MarketWatch.

Binance.US is providing users with information about the incoming form. The exchange did not respond to a request for further comment.

Shehan Chandrasekera, head of tax strategy at CoinTracker, expects more crypto investors to come to his firm seeking help determining their initial cost basis as the 1099-DAs pour in. “We are seeing traffic ramping up,” he said.

For years, cryptocurrency tax experts have been emphasizing how important it is for investors to keep good records. Though exchanges face more reporting requirements going forward, investors still have their work cut out for them in order to reduce their future tax bills.

When exchanges send out 1099-DAs next tax season, they will have to provide the IRS and the user with cost basis on the taxable transactions that originate and finish on their exchange, Chandrasekera said. That’s essentially formalizing what’s already happening this year at platforms like Coinbase and Robinhood.

Suppose, however, that crypto holdings on one exchange move to another where a sale or trade occurs. Then it’s the same story all over again for the 1099-DA form in 2026 that will be shared in 2027: The exchange reports the proceeds to the IRS, but it doesn’t have to supply the cost basis.

So the onus will remain on investors to keep a sharp eye on their crypto’s starting cost, according to Chandrasekera. Without a good handle on that starting price, “you will overpay taxes — that’s the main disadvantage.”