Crypto taxation has emerged as a significant topic of discussion, particularly with the IRS increasing its focus on digital assets in tax reporting. The introduction of Form 1099-DA, alongside new requirements for brokers and investment vehicles such as exchange-traded funds (ETFs), is poised to transform how both individuals and institutions manage their cryptocurrency tax responsibilities.
In an interview, Lawrence Zlatkin, Vice President of Tax at Coinbase, provided insights into the implications of these changes and offered advice to investors navigating the complex landscape of crypto taxation. He emphasized that understanding what constitutes a taxable event is critical, especially under the new regulations. Activities such as receiving cryptocurrency payments, selling assets, exchanging one cryptocurrency for another, and utilizing digital currencies for purchases will continue to be viewed as taxable events by the IRS.
Starting in 2026, Coinbase and other brokers will have to report customers’ crypto sales and exchanges to the IRS. For the 2025 tax year, Form 1099-DA will detail both the cost basis and gross proceeds for users, although Coinbase will only report gross proceeds to the IRS. In subsequent years, brokers will report both elements but will only disclose the cost basis for crypto acquired directly through their platforms, changing the reporting landscape significantly.
Zlatkin pointed out that moving cryptocurrencies between wallets is not considered a taxable event since the same asset remains in possession. However, for transactions completed before 2025, he urges investors to keep meticulous records of purchase prices and related transaction fees, as these details are essential for reconstructing cost basis and ensuring accurate tax filings.
For managing cost basis allocation, Coinbase users can adjust their tax center settings to choose among three methods: Highest In, First Out (HIFO), Last In, First Out (LIFO), and First In, First Out (FIFO). Zlatkin stresses the importance of consulting tax professionals to select the most advantageous strategy.
Investors holding ETFs that track Bitcoin or Ethereum may be interested in how upcoming IRS reporting regulations will affect them. In essence, ETFs will be classified as trusts or “look-through” entities, meaning any sales reported will reflect as if the investor directly sold or exchanged the cryptocurrency, without altering the tax implications.
The treatment of decentralized finance (DeFi) platforms is another point of concern, particularly as new rules come into effect in 2027. Zlatkin emphasized the necessity for DeFi users to keep thorough personal records of all transactions as these will not be reported by platforms. Despite the absence of reporting, DeFi activities are still subject to the same tax regulations as centralized finance (CeFi) transactions.
Investors should also bear in mind that tax-loss harvesting—selling underperforming assets to offset gains—can be a beneficial yet often overlooked strategy. Properly selecting a cost basis method can further help mitigate tax liabilities, but both approaches require diligent record-keeping.
Zlatkin addressed several common misconceptions regarding crypto taxes. Many individuals mistakenly believe that cryptocurrencies are treated as currencies by the IRS; in reality, they are classified as property, leading to taxable events upon transactions. Another widespread myth is the assumption that unreported transactions are exempt from taxes. In truth, while reporting assists in calculating tax obligations, the ultimate responsibility for payment lies with the taxpayer.
As tax season approaches, the shifts in crypto taxation regulations underscore the need for both clarity and preparation. Investors are encouraged to stay informed, seek professional guidance, and maintain meticulous records to ensure compliance while optimizing their tax strategies.
