What Investors Should Look For in Crypto Tax Advisor

Taxes and crypto taxes are a complex and somewhat confusing aspect of entering the blockchain and crypto space. With millions of Americans buying, selling, or trading crypto assets in 2022, it is clear that crypto has definitely reached mainstream financial discourse, despite significant price declines during that period. am. Virtually all mobile trading applications enable or allow cryptocurrency trading and trading, not to mention institutional trading intermediaries, dramatically increasing investor exposure to cryptocurrencies. increase.

Even if accessing, minting, trading, or using cryptocurrencies for trading purposes is liquid, the tax implications of these activities can surprise investors. In the tax world, unexpected events can lead to large and unexpected tax liabilities. Not a desirable outcome for individual or institutional users of crypto assets. Any transaction, mining event, mining operation, transfer, or exchange of virtual currency results in taxable activity and can quickly increase your tax bill. Multiple examples of this tax treatment that have surprised taxpayers are widely available, which raises the question:

CPA and tax accountants are always in high demand during tax season, the crypto tax niche tends to be even more overbooked, and unethical actors could capitalize on this increased demand. Regardless, let’s take a look at some of the factors investors should consider when looking for a cryptocurrency tax expert.

experience vs. experience. Working with tax professionals is always an iterative process, and the crypto tax space is no exception to this rule. Creators likely have significant experience preparing, filing, and handling common tax issues, but given how rapidly the crypto space continues to evolve, first-hand crypto experience In other words, one of the first questions to ask as part of the initial conversation is how much experience the tax professional has with regards to cryptocurrency taxes specifically. It means that there are

Incorporating cryptocurrency transactions and/or activities can further complicate the tax process, especially for clients who may have a slightly more complex tax situation. Another factor that needs to be communicated is where the majority of trading activity takes place. Each exchange has different policies regarding 1) the amount of information reported to the marketplace, 2) the frequency of data, and 3) the ability of users to verify and/or confirm this information.

An active crypto experience. Based on the previous points, another important question to ask early in the conversation is how much hands-on experience the tax attorney has outside of serving clients. Many of the issues and potential pitfalls that can trip taxpayers can only truly be understood if all parties involved address themselves. Wallet security, private key management, issuance of non-fungible tokens (NFTs), staking, and cryptocurrency mining can only be fully enforced if the individual in question has previously participated in these activities. can be understood.

When looking for a tax accountant to help you navigate the volatile and rapidly changing crypto space, one of the most important qualifications is how deeply involved the creator is with the crypto. This is not to say that all tax accountants should be experts in all aspects of cryptocurrencies, but in order to provide objective and competent advice, tax professionals should do these things themselves. had to be processed. Even seemingly simple transactions, such as the stablecoins used in the transaction, have indirect reporting and compliance factors that the creators need to be aware of and the client to be able to handle them effectively. There are many.

Ambiguous and comfortable. Taxes and tax preparation can be considered very straightforward and transparent. It also requires some dexterity and comfort with ambiguity. The tax code is written with multiple exceptions, carve-outs, and other nuances that the author should be 1) aware of and 2) comfortable dealing with her. Adding cryptography to this conversation further complicates this reality, adding more ambiguity that creators and investors will need to be comfortable dealing with.

On the one hand, preparing for a crypto tax is a very clear and transparent process. Any transfer or transaction involving crypto creates income tax reporting and potential payment obligations. Although crypto-specific tax directives and tax law updates have yet to be published, tax authorities around the world are actively prosecuting individuals and institutions who try to avoid their tax liability. A competent cryptocurrency tax return preparer should not only be comfortable with ambiguity, but also be comfortable communicating with clients, regulators, and peers on these issues.

As crypto assets become more integrated into financial markets, payment processors, and numerous mobile applications, choosing and working with a qualified tax accountant will become even more important. As always, due diligence is an important part of the process, and being proactive will ensure success for investors, CPAs and tax filers moving forward.