Redwood Design LLC is a single member LLC reported on a cash method Schedule C, and 2026 is the first year the file includes both a CoinHub exchange account and a self custody wallet.
A Form 1099-DA shows that 2 BTC were sold on 10/15/2026 with proceeds of $120,000, but the client says there were no taxable events because they only moved coins.
Before we touch basis methods or software exports, the immediate business need is to define the workpaper package that can support what gets reported on Form 1040 for 2026 when the records live in multiple places.
That deliverable is a complete 2026 digital asset workpaper package that ties the raw transaction evidence to reported income items and capital gain or loss reporting, so an IRS matching notice on the 1099-DA can be answered with documents and computations instead of explanations.
To see the flow from activity to forms, work through this scoping map now:
The path you built becomes our file backbone, so each later step has a place to land.
When a taxpayer sells or exchanges crypto, the tax result is driven by what happened to the property, not by whether a broker issued a form or whether the taxpayer thinks it was only a movement between wallets.
The first decision is whether the 10/15/2026 event is a disposition that can create gain or loss, or just a transfer that only changes where the asset is held.
Notice 2014-21 says convertible virtual currency is treated as property for U.S. federal tax purposes and that general tax principles for property transactions apply.
Because it is property, a sale or exchange is a realization event, so Redwood’s 10/15/2026 sale of 2 BTC is a taxable disposition even if the client describes the surrounding activity as moving coins.
A transfer between the exchange and a self custody wallet is different because ownership does not change, so it is typically a records and basis tracking issue rather than an income recognition event, but the sale shown on the 1099-DA is still a sale.
Notice 2023-34 modifies background language in Notice 2014-21 but states the change does not affect the answers in the Notice 2014-21 FAQs, including the property treatment framework we apply here.
Common error Treating a 1099-DA as optional because it is “only proceeds” leads to missing Form 8949 lines and a likely IRS notice.
Once we know the sale is a disposition, the workpaper question becomes which documents prove proceeds, basis, holding period, and any ordinary income items that might also be present in the year.
Make one choice before collecting anything, which bucket does each record belong to, proceeds evidence, basis evidence, holding period evidence, or ordinary income evidence.
Use this sorting step to build the intake checklist for Redwood’s file: