How Cryptocurrency Tax Services Can Be Optimized
The rapid and almost unpredictable growth of cryptocurrency and blockchain technology brings many regulatory repercussions that are still unfolding. As an accredited CPA providing cryptocurrency tax services to clients, it is imperative to have a clear understanding of the nuances of the blockchain market.
CPAs offering cryptocurrency tax services to individual clients and companies, need to have some kind of framework to maximize their efficiency. A new optimization system should be put in place.
Understanding the Underlying Technology
Understanding the underlying technology that powers blockchain networks and cryptocurrencies will help these companies provide the best service possible to clients. Knowing all the technical nuances can be a daunting task, therefore starting with the first digital currency that is widely used, Bitcoin, is preferable.
Once these companies understand how Bitcoin works, only then should they be committed to trying other cryptocurrencies, such as Ethereum. More importantly, knowing the transaction model of Ethereum and Bitcoin will be instrumental for the service delivery quality.
Note that the IRS classifies all digital currencies/cryptocurrencies as properties that are subject to capital gain tax. This means that sale, mining, trading, and purchase are all taxable events.
Investing in Cryptocurrency Tax Software
Cryptocurrency tax software will help these companies keep records more efficiently and calculate taxes for clients faster. ZenLedger is one of the leading platforms in this department. The platform filters and aggregates all cryptocurrency transactions from mining, exchanges, and wallets.
Some software even auto-fill some tax forms such as FinCen114, FBAR, Schedule D, and 8949. Taking the time to compare and contrast the software available in the market will not only diversify the options for clients but also help companies stand out.
Fine-Tuning Bookkeeping Practices
Bookkeeping practices are essential to fine-tune if these companies are to succeed in providing stellar cryptocurrency tax services. As mentioned earlier, IRS categorize bitcoin as property and bookkeeping can become a complicated and tedious task if companies are not well prepared. Clients will come with hundreds if not thousands of transactions that need to be reported.
However, cryptocurrency payments for services or goods are considered as ordinary income at the market price when sent or received. Different states have varying regulations, so these tax services need to be extremely careful in order to avoid any legal problems further down the line. Some concepts such as mining, forks, and airdrops are confusing. Most CPAs report them as taxable income while mining hardware equipment is considered a business expense.
Closing Remarks
These points are essential for any cryptocurrency tax service if they are to succeed. Furthermore, the success of these companies is also a benchmark for the quality of cryptocurrency trading in the region as it becomes more and more manageable. Monitoring trending cryptocurrency news and trends will become more accessible as traders will be able to devote more time and effort to it.