7 Mistakes You’re Making with Form 1099-DA (and How to Fix Them)

NEW HAVEN, CT – Jose’s Tax Service – March 24, 2026

If you have been trading Bitcoin, Ethereum, or even those obscure alt-coins, the IRS just got a brand-new lens to look into your digital wallet. It is called Form 1099-DA (Digital Assets). For many of my clients here in New Haven, this form is hitting mailboxes and email inboxes for the first time, and let me tell you: it is causing a lot of confusion.

I’m Jose' Morales, CEO and lead Tax Pro at Jose’s Tax Service. I’ve seen a lot of tax changes in my time, but the introduction of crypto-specific reporting is one of the biggest shifts we’ve seen in years. The IRS is serious about closing the "crypto tax gap," but the forms being sent out by brokers and exchanges are often riddled with errors. If you just copy what is on the form onto your tax return, you might end up paying thousands more than you actually owe.

Don't let a computer error at a big exchange drain your bank account. Here are the seven biggest mistakes people are making with the new Form 1099-DA and, more importantly, exactly how you can fix them before the filing deadline.

1. Assuming the "Cost Basis" is Correct!

The single biggest mistake you can make is trusting the cost basis reported on your 1099-DA. The cost basis is what you originally paid for the asset, including fees. When you sell, you only pay taxes on the profit (the difference between the sale price and the cost basis).

The Problem: Many brokers are not yet required to track or report the cost basis for assets acquired before certain dates. If you transferred crypto from a private wallet into an exchange and then sold it, the exchange often has no idea what you paid for it. They might report a $0 cost basis, making it look like your entire sale price is 100% taxable profit.

How to Fix It:

• Reconstruct your history. Use your original trade confirmations or blockchain explorers to find the actual price you paid.
• Use Form 8949. You have the right to correct the basis on Form 8949 (Sales and Other Dispositions of Capital Assets).
• Keep your receipts. If the IRS asks why your numbers don't match the 1099-DA, you need that digital paper trail.

2. Failing to Reconcile Incorrect Proceeds!

Sometimes the "Proceeds" box on the form doesn't actually reflect the money that hit your account. This happens often with "wrapped" tokens or complex decentralized finance (DeFi) transactions.

The Problem: The broker might report the gross proceeds of a trade without accounting for the gas fees or network fees required to execute the transaction. In other cases, a failed transaction might still trigger a 1099-DA entry if the exchange processed a portion of it.

How to Fix It:

• Cross-reference every line. Compare your 1099-DA against your actual exchange transaction history.
• Adjust for fees. Ensure that selling fees are deducted from your total proceeds to lower your taxable gain.
• Report the truth. If the proceeds are flat-out wrong, report the correct amount on your return and keep documentation explaining the discrepancy. For more on handling these updates, check out our Tax Update category.

3. Reporting Simple Transfers as Taxable Sales!

This is a classic "gotcha" that catches New Haven small business owners and casual investors alike.

The Problem: Moving your crypto from Coinbase to a hardware wallet like a Ledger or Trezor is not a taxable event. It’s like moving money from your left pocket to your right pocket. However, some platforms mistakenly flag these transfers as "dispositions" (sales) and generate a 1099-DA for them.

How to Fix It:

• Identify non-taxable transfers. Review your 1099-DA for any transactions where the "receiver" was actually just another one of your own wallets.
• Exclude them. You do not need to report these as sales on your tax return.
• Document the "To" and "From" addresses. If the IRS sends a notice, you can prove that you still own the asset and never actually "sold" it for a gain.

4. Mixing Up Your Accounting Methods!

The IRS allows different ways to calculate your gains, such as First-In, First-Out (FIFO) or Specific Identification (Specific ID).

The Problem: If you used FIFO last year but your 1099-DA is generated using a different method this year, your records will become a nightmare. Inconsistent accounting methods are a massive red flag for an IRS audit.

How to Fix It:

• Pick a method and stick to it. Consistency is key in tax planning.
• Manually override if necessary. If your exchange defaults to FIFO but you have documented records for Specific ID to save on taxes, use your records.
• Verify prior years. Ensure your 2026 reporting aligns with what you did in 2025.

5. Treating Purchases or Deposits as Sales!

It sounds crazy, but it happens. Because digital asset reporting is so new, software glitches can sometimes categorize a deposit into an exchange as a sale of that asset.

The Problem: You buy $1,000 of Bitcoin. Instead of showing a purchase, the exchange's automated system views the incoming asset as a "sale" of the USD you used to buy it, or worse, a sale of the Bitcoin itself.

How to Fix It:

• Audit the "Transaction Type" column. Carefully look at whether each line item is labeled as a sale, exchange, or "other."
• Reclassify. If a deposit is shown as a sale, you must correct this on your return. You should not pay taxes on money you just invested. If you’re unsure how to handle this, see what to expect when you give us a call.

6. Forgetting Staking, Mining, and Airdrops!

Form 1099-DA is primarily for "sales and exchanges." However, many people earn crypto through other means that the form might not cover.

The Problem: Staking rewards, mining income, and airdrops are generally taxed as ordinary income at their fair market value on the day you received them. Because they aren't "sales," they might not appear on your 1099-DA, leading you to forget to report them entirely.

How to Fix It:

• Track your "income" events. These don't go on Form 8949 as capital gains; they usually go on Schedule 1 as "Other Income" or Schedule C if you’re running a mining business.
• Establish your new basis. The value you report as income today becomes your cost basis for when you sell that crypto in the future. If you miss this, you’ll end up being taxed twice on the same money! This is a vital tax tip for anyone in the DeFi space.

7. Getting the Holding Period Wrong (Short-term vs. Long-term)!

In the eyes of the IRS, time is money.

The Problem: If you hold an asset for one year or less, you pay short-term capital gains tax (up to 37%). If you hold it for more than a year, you pay long-term capital gains tax (0%, 15%, or 20%). A 1099-DA might incorrectly list an asset as short-term because the exchange doesn't know you held it in a private wallet for two years before moving it to the exchange to sell.

How to Fix It:

• Calculate the exact days. The clock starts the day after you acquire the asset.
• Update the "Date Acquired" field. Use your own records to prove the asset is long-term. This single fix can save you nearly 20% in taxes on large gains.

The Golden Rule: Don't Force Your Return to Match the 1099-DA!

The biggest mistake of all is thinking that the 1099-DA is an absolute truth. It isn't. It is an information return provided by a third party that may only have 50% of the story.

If your records are accurate and they disagree with the 1099-DA, trust your records. The IRS expects there to be discrepancies as these new rules roll out. As long as you have the blockchain data and receipts to back up your numbers, you should report the correct financial reality, not the broken data on a form.

How Jose’s Tax Service Can Help

Navigating the world of digital assets is stressful. Between the IRS updates and the technical jargon of crypto exchanges, it’s easy to feel overwhelmed.

At Jose’s Tax Service, we specialize in helping New Haven residents and small business owners navigate these new digital asset reporting rules. We don't just "plug in the numbers." We look at your entire transaction history to ensure you aren't overpaying. Whether you have ten trades or ten thousand, we have the tools to reconcile your 1099-DA and get your filing right the first time.

Take Action Now:

1. Gather your documents. Download your 1099-DA forms and your full CSV transaction histories from every exchange you use.
2. Don't wait until April. Crypto reconciliation takes time.
3. Call the pros. If you see a discrepancy you can't explain, reach out to us. You can learn more about our process by visiting our step-by-step guide.

Stop stressing about the IRS and start getting your crypto taxes handled the right way. Come see us in New Haven: we’re here to help you keep more of your hard-earned money.

Jose' Morales
CEO, Jose’s Tax Service
Your Local Tax Pro in New Haven

For more information on staying safe from scams and keeping your identity secure during this tax season, read our guide on tax professional protection.