1099-DA Crypto Taxes Explained: How to Fix Exchange Errors Using IRS Form 8949 Private Video (Scheduled)

0:00So you got a 1099 DA, what does that mean? It means that an exchange has reported to the IRS that you had certain sales or exchanges during the year. Now that information is not the whole picture of your trading environment. This is the first year, the 1099 DAs have been issued and everybody's making them look different and they're confusing. So what does it mean when you have a 1099 DA? It's gonna have certain columns that list what you sold or exchange the dates that you bought and sold it, the prices at which you bought and sold it. Although this first year, 2025, the cost basis will not be sent to the IRS. This is an area which is misleading to a lot of people. This year only, the IRS will not get the cost basis numbers nor the total gain last column. So what do I do with this 1099 DA? So I just plug it into my tax software. What if I think it has the wrong number? If you just plug these numbers into your tax software,

1:02it's gonna look like you made a fortune because you're not gonna be entering any cost basis. You need to calculate the cost basis. The first thing you do is you go to a crypto tax software platform to help you calculate the gains and then you report those amounts on an IRS form and it's called 89.49. How are you gonna do that? Well, there's lots of online services that you can use that could do that sort of thing. We also at crypto tax ought to offer a full service if it's overwhelming to you. But here's the thing, some of these tax software applications tell you that they're gonna match your trades to the 1099 DA. But is that the right thing to do? If the 1099 DA is not the final answer on how to do my taxes, where do I actually start to fix this? It's called 89.49. And it kind of looks like a spreadsheet or a grid format if you will. In here you put what it was you sold or exchanged. The dates you bought and sold it, the prices it would you bought and sold it, the net profit at the end.

2:03And this all totals up and goes on to your schedule D which is where all your capital gains go when they get reported on your tax return. You need to enter all your digital asset trades into form 89.49. One page is for short term gains and the other one is for long term gains. And you can have as many of those pages as you need in the tax return. Some people list all their trades on every single line on them. Other people enter just the bottom line totals from all their trading activity in this form 89.49. IRS is happy either way. There is a set of boxes in the middle and these boxes are to indicate whether or not the cost basis has been reported to the IRS on a 1099 form. This year we're doing your 2025 taxes here in 2026. Everybody's gonna check the last box which is I or L, if you're long term because no cost basis are being reported to the IRS this year. But in future years it'll be different. There will be some cost basis reported.

3:03So you need to check the appropriate box. These 1099 DAs can be very misleading to the IRS. It can cause you problems. Let me tell you why. The rules under which the exchanges have to put up the capital gains for these trades are different than the rules that you have to follow. The exchanges don't always know what the cost basis is in the transfer. They are told in the tax regulations 1.645-1 subparagraph D that when an asset is transferred into the exchange that the exchange is to assume that it had received that asset on that date. So it's gonna think that's the date you receive it. And that's the date they use when they reported on your 1099. But you probably bought that asset much earlier than that. Here's what happens. They may report it as a short term gain. When in fact, it's a long term gain because you had bought it a prior year. This is why crypto tax software companies

4:06which say, hey, we will match your trades to the 1099 DA are completely going down the wrong path. The 1099 DAs are not to be assumed to be correct. Even the IRS does not assume them to be correct. It's trying to give them an impression of where things are at. You have a 1099 DA. Can you ignore this? Well, no, you shouldn't. The IRS is expecting you to report it on your tax returns. You gotta make sure that you give it to your tax preparer. If you're doing your own taxes, you gotta make sure you enter it into the tax software. When the tax return gets emailed or electronically sent to the IRS, the IRS checks to see if you have accounted for all the 1099s that they know you got. So you need to enter it. But what are you doing? The numbers on the 1099 are wrong or misleading. Well, you have to go and adjust it and correct it. And you do this on the form 8949. We'll lay it out in detail on screen. Basically, you're going to subtract out the 1099 DA and then insert capital gains as you've calculated using your tax calculation software

5:08for cryptocurrencies. The first thing you do is you have to check the right box. The box in the upper half, you have to check the GHRI and the 1099 DA will tell you whether it is a short-term or long-term, whether it's cast basis was previously reported or not. So you check the correct box for that. But then down below in the grid section and the first entry, what you would write would be something like this. It might say Binance 1099 DA and then where it says date acquired, you say various. This is a standard setting. Date, sold, various proceeds. Whatever the total proceeds is from the 1099 DA for that type of asset, short-term or long-term. The cost basis would be black. In column G is where you're going to put the negative $100,000 adjustment. So if you reported $100,000 in proceeds, you're going to make it a negative $100,000 adjustment.

6:10You're subtracting off all the proceeds that Binance reporting. So that in column H, total gain that shows up to zero. That's how you subtract it off. Then in the next column, you enter the total capital gains, in this case, short-term or long-term, as you had it calculated using coinly or coin ledger, coin tracking as a number that you calculated there. So that's how you add that in. This way, you're accounting for the 1099 because the IRS expects you to account for it. If you don't, you're going to get an audit. But it also makes sure that you don't get bothered by the numbers that the exchange is reporting. This is how you do it. All your 8949s are then summed up and totaled and put onto the Schedule D, which is where your bottom line capital gains numbers are calculated. So here's the kicker. In the US, long-term gains are taxed at a lower rate. So you really want to get things on the long-term page at the appropriate. Long-term gains are for assets you have in excess of 365 days,

7:10in excess of one year. This is a big issue for these 1099dAs. Those 1099dAs, if it doesn't look right to you, don't report it that way. But you have to account for the 1099dAs on your tax return. You just have to correct it. And you do that on four, 8949. Hey, good luck with doing your taxes this year.