Invest In Cryptocurrency? What Florida Taxpayers Need To Know About IRS Audits

Once a gray area in tax enforcement, the Internal Revenue Service (IRS) has intensified efforts to audit digital asset activity, including trades, sales, staking, and mining. Understanding how crypto is taxed and how the IRS tracks these transactions is more important than ever for Florida taxpayers.

Florida does not impose a personal income tax, but federal tax obligations still apply. Not reporting crypto holdings and transactions can lead to significant penalties. Whether you’re a casual investor or an active trader, our experienced Florida tax-IRS attorney explains the importance of understanding how the IRS approaches crypto audits and how to protect yourself from scrutiny.

How the IRS Tracks Crypto Activity in Florida

According to 2025 Gallup polls, nearly 20 percent of all U.S. adults have invested in cryptocurrency. It is treated as property under federal tax law, meaning every sale, trade, or conversion of crypto to goods or services can result in a taxable gain or loss.

Under IRS guidelines, even crypto-to-crypto trades are considered reportable events. Common ways the IRS detects crypto transactions include:

• Third-party reporting from exchanges (such as new Form 1099-DA);
• Blockchain analytics tools that track wallet addresses and transfers;
• Data-matching systems that flag mismatches between reported income and actual transactions;
• Subpoenas to crypto platforms for user data;
• Responses to the digital asset question on Form 1040.

Crypto Audit Risks and Reporting Requirements for Florida Taxpayers

The IRS has identified several red flags that increase the likelihood of an audit. Florida taxpayers should be cautious when engaging in crypto activity that may be misunderstood or incorrectly reported.

In 2025, enforcement is more automated, and audit targets are often selected based on data irregularities alone. High-risk areas that commonly trigger cryptocurrency audits in Florida include:

• Failure to report staking rewards, mining income, or airdrops;
• Omitting crypto-to-crypto trades on Schedule D and Form 8949;
• Lack of documentation for cost basis or acquisition details;
• Incorrectly claiming capital losses on personal-use transactions;
• Leaving the digital asset question on Form 1040 blank or incorrect;

To stay compliant, Florida taxpayers should maintain detailed records for every transaction, including the date of purchase, date of sale, cost basis, fair market value, wallet addresses, and associated fees. Wallet-level tracking and enhanced basis reporting are also required for many exchanges, meaning the IRS has more information about crypto holdings than ever before.

Worried About A Cryptocurrency Audit? Consult Our Experienced Florida Tax Attorney

If you’re among the many Florida residents who trade or invest in crypto, be aware that the IRS is watching. In 2025, federal enforcement is stricter and more tech-driven, which makes it easier for the IRS to audit taxpayers who misreport or underreport digital transactions.

Ronald Cutler, P.A., has over 40 years of experience helping Florida taxpayers navigate complex IRS issues, including audits, crypto-related reporting, and disputes over digital assets. As a CPA and former FBI agent who handled tax cases, our Florida IRS/tax attorney can review transactions, correct past errors, and protect your rights in an audit. Call or contact our office today to schedule a confidential consultation.

Sources:

irs.gov/filing/digital-assets

news.gallup.com/poll/692777/cryptocurrency-limited-main-street-appeal.aspx#:~:text=As%20of%20the%20most%20recent,among%20those%20earning%20under%20$48%2C000.