Coinbase Survey Finds Many Crypto Users Still Misunderstand Taxes

A recent survey by Coinbase and Cointracker found that nearly half of crypto investors fail to recognize that selling cryptocurrency is a taxable event. Only 49% correctly understand the tax implications, while 25% incorrectly believe that transferring crypto between wallets is taxable.

The survey also highlights the complexity of managing crypto assets across multiple platforms. The average user holds assets in 2.5 platforms or wallets, making record-keeping and cost basis tracking difficult. This challenge is compounded by the introduction of Form 1099-DA, which requires exchanges to report transaction data directly to the IRS.

Coinbase expects to issue over four million 1099-DA forms in 2026, many for users with under $600 in proceeds. These users often lack complete cost basis information, increasing the risk of compliance errors.

How Is the IRS Tightening Its Grip on Crypto Tax Compliance?

The IRS now treats cryptocurrency as property, making every sale, trade, or use a taxable event. The 2025 tax year marked a significant change with the introduction of Form 1099-DA, which exchanges are now required to report directly to the IRS. This move makes it harder to evade taxes on crypto transactions and increases the likelihood of IRS enforcement action.

The IRS requires taxpayers to answer a digital asset question on Form 1040 if they had any crypto activity in 2025. This includes activities such as receiving staking rewards or trading one cryptocurrency for another. Taxpayers must also reconcile their 1099-DA forms with their own records to avoid discrepancies.

What Role Do Cost Basis Methods Play in Tax Optimization?

Choosing the right cost basis method—FIFO, LIFO, or HIFO—can significantly affect a taxpayer's crypto tax liability. FIFO, the IRS default, assumes the oldest coins are sold first, which can lead to higher gains in a rising market. LIFO, which sells the most recent coins first, can reduce gains in bull markets but requires specific identification of each lot.

HIFO, or Highest-In, First-Out, is ideal for minimizing gains by selling the highest-cost coins first. This method is popular among high-frequency traders but requires meticulous record-keeping. Using crypto tax software can help automate these processes and ensure IRS compliance.

Why Is Manual Tracking a Challenge for Self-Custodial Wallet Users?

Self-custodial wallet users face unique challenges in tracking cost basis because they must manage records manually. This increases the risk of errors and non-compliance. With the introduction of 1099-DA, even small transactions like stablecoin payments and gas fees are now technically taxable events, further complicating compliance.

Industry experts like Matt Price of Elliptic acknowledge the complexity of the current tax regime but believe the industry can adapt with proper tools and guidance. The use of crypto tax software is increasingly seen as essential for managing tax obligations and ensuring compliance with IRS requirements.