For most taxpayers in the United States and elsewhere, filing taxes yourself or using a self-service software option is often a daunting task. Now, with the addition of complex crypto assets to the mix, filing yearly taxes could degenerate into an impossible task without the help of an expert Crypto CPA or specialized Crypto Tax Accountant.
U.S. taxpayers are required to report crypto sales, payments, conversions, and income to the IRS, and state tax authorities where applicable, and each of these transactions has different tax implications. In this article, you’ll learn when your crypto can be taxed and how to choose a qualified Crypto Accountant to file your taxes. Let’s dive in.
When Do My Crypto Assets Become Taxable?
The recent blow-up in the cryptocurrency industry’s value and popularity has attracted the IRS’s financial dragnet. Therefore, it has become necessary that you understand how much taxes you need to pay on your crypto gains as well as exemptions in the case of losses. The two taxable events in cryptocurrency are capital gains and income tax events, which are often charged at different tax rates. Currently, there are complications with the cryptocurrency tax rates. However, substantial regulations on crypto are modeled closely to that of other income-generating capital assets such as bonds or stocks.
Fortunately, like stocks and bonds, you only owe capital taxes on crypto assets if you realize profits after selling your holding position. In contrast, you do not owe any taxes on crypto transactions that lead to losses. However, you are required to disclose it in your tax filing form. In 2021, STILT Inc, a financial technology company based in San Francisco, recorded the cryptocurrency tax rate ranging from 10-37% for short-term capital gains and between 0-20% for long-term gains.
Some Tips To Choose The Right Crypto Tax Accountant:
- Use A CPA Familiar With The Crypto Space
For most CPAs, crypto is a novel subject. As a new asset class with little to no regulations, most CPAs may have never interacted with crypto assets directly nor completed a tax filing with any crypto assets involved. Therefore, you should ask questions like “Do you own Crypto assets?” or “Do you have any experience filing taxes involving Crypto assets?” before you choose the CPA. This process is crucial because the crypto space requires technical nuance and understanding, which ensures the CPA will be using the correct tax guidance to file your taxes. If in doubt search the internet for a term like: “Crypto CPA” or “Crypto Accountant”
- Crypto Accountant’s Ability To Reconcile Gains And Losses
Your Crypto CPA must be skilled in calculating the gains and losses accrued on your crypto assets. In a 2020 Forbes article, Shehan Chandrasekera reiterates this point by stating “…there are several cryptocurrency tax software options which help you reconcile crypto gains and losses for tax purposes. Ask your regular accountant or crypto accountant what software they use to reconcile the transactions. If they run them manually or in a spreadsheet, that is a red flag. Manual calculations are extremely time-consuming (which will be reflected in the fees) and often inaccurate due to the complexity of the crypto space…”
- Select a Crypto Tax Accountant With An Open Mind
The crypto space is still in its early days. As a result, there isn’t always a playbook or fixed guidelines to follow. Crypto tax laws from the IRS are often ambiguous. Crypto CPAs are often operating with loose IRS stipulations. There are varying interpretations of various law in the tax code. What route a tax accountant or enrolled agent will take depends on the degreed of risk a client is willing to take. Therefore, the more your chosen CPA has real-world experience, is up to date with the latest crypto news, Internal Revenue Service (IRS) updates and having conversations with regulators, the better your chances of tax filing success.
In sum, you must select the right Crypto tax accountant when filing your taxes to avoid unwanted fines and ultimately keep the IRS away from your doors.