Starting January 1, 2025, the IRS fundamentally changed how crypto taxes work. The old "universal" method — treating all your crypto as one big pool — is dead. Now it's wallet-by-wallet accounting, and where you hold your coins matters more than ever.

Here's what that means for your taxes.

You could treat all your Bitcoin across Coinbase, Binance, cold storage, and DeFi wallets as one pool. When selling, you'd pick which specific lot to sell from anywhere.

Each wallet and exchange is now a separate ledger. When you sell crypto from Coinbase, you can only use cost basis from coins in that Coinbase account.

Example: You bought 1 BTC on Coinbase at $20,000 and 1 BTC on Kraken at $60,000.

Result: Same sale, potentially $40,000 more in taxable gains under the new rules.

For tax year 2025, US exchanges report gross proceeds (what you received from sales) but NOT your cost basis. You're responsible for tracking cost basis yourself.

Example: Coinbase reports you sold $50,000 worth of crypto. The IRS sees $50,000. If you can't prove your cost basis was $45,000, they might assume it was $0 — and tax you on the full $50,000.

Starting in 2026, exchanges will report both proceeds AND cost basis — but only for assets:

Transfers break the chain. If you bought on Coinbase, moved to cold storage, then back to Coinbase to sell — the exchange may not have accurate cost basis.

Starting January 2027, if you haven't confirmed your tax status (W-9), exchanges will:

Action: Make sure your tax information is up to date on every US exchange.

Short answer: No — but that doesn't mean the IRS won't find out.

US citizens and residents owe taxes on worldwide income — including crypto held on foreign exchanges.

The IRS may not get a 1099, but they have:

Reality check: The blockchain is public. Every transaction is traceable.

This is where it gets serious. Penalties for non-compliance can reach $100,000 or 50% of account value.

Current status: Crypto-only foreign accounts are NOT currently required to be reported on FBAR.

But: FinCEN has signaled they intend to add crypto accounts to FBAR requirements. This could happen any time.

If your foreign account holds both crypto AND fiat (euros, yen, etc.), it's a "hybrid account" and FBAR likely already applies.

The IRS hasn't definitively said crypto on foreign exchanges must be reported on Form 8938. But they also haven't said it's excluded.

Recommendation: If you meet the thresholds, report foreign crypto holdings on Form 8938. There's no penalty for over-reporting, but severe penalties for under-reporting.

Self-custody wallets don't report to anyone. You are the only one who knows what's in them.

But: Every on-chain transaction is public. When you interact with exchanges or DeFi protocols, those transactions are recorded forever.

Under the new 2025 rules, each self-custody wallet is its own accounting unit.

Example: You have Bitcoin on:

When you sell from Ledger Wallet A, you use the $15,000 cost basis — even if Ledger Wallet B has higher-cost coins.

Moving crypto between your own wallets is NOT taxable. But you must:

Circle is a US company. USDC transactions through US exchanges are reported like any other crypto.

Special rule: Stablecoin sales under $10,000 are exempt from 1099-DA reporting by exchanges. But you still must report them on your tax return.

Stablecoins can have micro-gains due to price fluctuations. A $0.13 gain on swapping USDC → USDT is technically taxable.

Reality: Track them, report them, but don't stress over pennies. Use crypto tax software.

Decentralized protocols don't collect your identity and don't issue tax forms.

You're 100% responsible for tracking and reporting:

Here's where 2025 gets messy:

Result: Coinbase reports $10,000 in proceeds with no cost basis. IRS sees $10,000 taxable gain unless you prove otherwise.

Simplest case. Coinbase tracks everything. Starting 2026, they'll report both proceeds and cost basis. Just verify their numbers.

Each exchange is a separate accounting unit. If you want to use HIFO (highest cost first), you can only select from lots within that specific exchange.

Track your cost basis when you transfer. When coins move from Coinbase → Ledger, document the original purchase date and price. That basis follows the coins.

*FBAR required if account holds crypto + fiat; may expand to crypto-only accounts

The less the IRS sees automatically, the more documentation you need — and the higher the penalties if you get caught underreporting.

No matter where your crypto lives, US persons owe US taxes. The only question is how much work you'll do to report it correctly.

Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional for advice specific to your situation.

By Ran Chen, EA, CFP®