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Cryptocurrency Tax Matters And What You Need To Know

Cryptocurrency taxes can feel overwhelming, but you do not have to face them alone. The IRS is paying closer attention to digital assets, and mistakes can lead to serious problems such as audits or penalties. A cryptocurrency tax attorney can guide you through these challenges with clear, experienced advice. At Bendure & Thomas, we make complex tax rules easier to understand and help you stay on the right side of the law.

Our firm, founded in 1977, has served people and businesses in Bloomfield Hills and Oakland County for over 45 years. We have helped clients with IRS audits, reduced penalties and tricky cryptocurrency tax compliance rules. Whether you are dealing with unreported crypto income or planning future investments, our experienced cryptocurrency tax attorneys are here to protect your interests.

How Do The New 2026 IRS Form 1099-DA Rules Affect My Cryptocurrency Tax Reporting?

Starting with the 2026 tax year, the new IRS Form 1099-DA mandates that digital asset brokers, including cryptocurrency exchanges and certain hosted wallet providers, report gross proceeds from crypto asset sales and dispositions to both the IRS and individual taxpayers. This enhanced cryptocurrency tax reporting significantly increases transparency, potentially leading to more accurate pre-filled tax forms for individuals but also demanding meticulous personal transaction record-keeping to ensure IRS compliance and reconcile with broker-reported data.

How Are Cryptocurrency Transactions Taxed By The IRS?

The IRS treats cryptocurrency as property, not money. This means you need to follow capital gains rules, like those for stocks or real estate when you trade or sell digital assets. For example, selling bitcoin, swapping one cryptocurrency for another, or using cryptocurrency for purchases can lead to a taxable event. Even earning crypto through mining or staking rewards triggers taxes.

Here are some common taxable events:

Selling crypto for U.S. dollars or other fiat currency
Exchanging one type of cryptocurrency for a different one
Using crypto to pay for goods or services
Earning crypto from mining income taxation or staking
Receiving airdrops or forks

Each event may result in a capital gain or loss. You report these on Form 8949 cryptocurrency forms and include them on Schedule D crypto transactions. IRS Notice 2014-21 requires you to calculate the fair market value of your crypto at the time of each transaction. Even small purchases need careful records. Without proper crypto capital gains reporting, you risk IRS penalties, especially since unreported crypto income is a top enforcement focus.

What Are The Penalties For Failing To Report Cryptocurrency On Tax Returns?

Mistakes in your crypto taxes can lead to trouble. The IRS may charge penalties based on the type of error. Honest mistakes might mean a 20% penalty on the unpaid taxes. Willful crypto tax evasion penalties, such as hiding income, could lead to a 75% penalty or even criminal charges. Interest on unpaid taxes adds up fast, too.

If you hold crypto in foreign accounts, the Foreign Bank and Financial Accounts (FBAR) requirements for cryptocurrency apply. Not reporting these accounts can bring extra fines. If you get an IRS letter or face a crypto tax audit defense, act quickly. Our cryptocurrency tax attorneys review your case, gather documents and work with IRS examiners to reduce penalties. We know how to handle the burden of proof and negotiate solutions.

Can You Use Cryptocurrency Losses To Offset Other Capital Gains?

Yes, you can use crypto losses to lower taxes on other investments. This strategy, called crypto tax loss harvesting, involves selling assets at a loss to offset gains. You must report losses correctly on Form 8949 and Schedule D. Proper timing and records are key to making this work.

Right now, the wash sale rule does not apply to cryptocurrency or digital assets, but the IRS might change this rule later. In some cases, you could claim losses as theft or worthless security deductions, but these need strong proof. Our cryptocurrency tax attorneys can help you apply losses correctly to avoid audits or rejected claims.

Why Can The 1099-DA Cost Basis Rules Create Unexpected Tax Exposure?

One of the most overlooked issues in the new 1099-DA reporting framework is how cost basis is handled. For the 2026 filing season, which covers 2025 cryptocurrency activity, digital asset brokers are required to report gross proceeds only. They are not yet required to report your cost basis to the IRS. This creates a serious risk for taxpayers who assume the broker reporting is complete.

If your return does not clearly document your original purchase price, transaction fees or acquisition dates, the IRS may treat the transaction as having a zero-dollar cost basis. That means the entire sale could be taxed as pure profit. For active traders or long-term holders who acquired crypto years ago, this mistake can dramatically inflate reported gains.

How Is The IRS Using Automated Matching To Review Crypto Returns?

The IRS is no longer relying solely on manual review when it comes to digital asset enforcement. New AI-driven systems and machine learning tools are now used to automatically compare taxpayer filings with broker-reported 1099-DA data. Even small discrepancies between reported proceeds and reported gains can trigger notices, audits or follow-up inquiries.

These automated systems are particularly sensitive to missing transactions, inconsistent dates or mismatched amounts. A taxpayer who reports only net gains while the broker reports gross proceeds may be flagged immediately. Once flagged, the burden shifts to the taxpayer to prove accuracy.

Are Stablecoin Transactions Really Taxable Under Current IRS Rules?

Many taxpayers assume stablecoins function like cash and therefore fall outside capital gains rules. Under current IRS guidance, that assumption is incorrect. Stablecoins are classified as property, not currency. This means each transaction involving a stablecoin, including swaps, transfers or payments, can trigger a taxable gain or loss.

With 1099-DA reporting expanding to include stablecoin transactions, the paper trail is now much clearer. Even small fluctuations in value between acquisition and use can create reportable activity. Taxpayers who frequently move in and out of stablecoins may unknowingly generate dozens or hundreds of taxable events each year.

How Do Michigan And Local Crypto Initiatives Complicate Tax Reporting?

Michigan residents face additional complexity when cryptocurrency intersects with local initiatives. Detroit’s exploration of cryptocurrency for property tax payments introduces new reporting challenges that blend municipal and federal obligations. These transactions raise questions about valuation timing, gain recognition and potential duplicate reporting. Without careful structuring and documentation, taxpayers risk inconsistent treatment across reporting systems.

Why Work With A Cryptocurrency Tax Attorney Instead Of Just A CPA?

CPAs are great for preparing tax returns and checking numbers. But when the IRS questions your taxes or starts an audit, a cryptocurrency tax attorney offers unique advantages. Only attorneys can represent you in court or provide attorney-client privilege for sensitive discussions.

If the IRS challenges a deduction or how you reported a transaction, we advocate for you and negotiate with IRS agents. We know how to present your case in a way the IRS and tax courts understand. You need in-depth legal guidance for complex issues such as tax audits or bitcoin tax planning. We also help with crypto estate planning and cryptocurrency retirement accounts to secure your financial future.

Get Strategic Help With Cryptocurrency Tax Matters

Navigating crypto taxes does not have to be stressful. Whether you are facing an audit, planning investments or fixing past returns, Bendure & Thomas is here to help. We offer comprehensive legal support for virtual currency tax treatment, NFT tax implications and even like-kind exchanges of digital assets.

Call us at 248-782-6869 today for a private consultation with a cryptocurrency tax attorney. Send us a message online to schedule an appointment.