4 tips for CPAs providing cryptocurrency tax services

The meteoric rise of cryptocurrencies brings many legal and regulatory repercussions that are still unfolding.

As a CPA, manually filing cryptocurrency taxes for your clients can be a convoluted and arduous experience. The sheer scale of cryptocurrency exchanges, both foreign and domestic, as well as different avenues for investing and using them (i.e., mining or trading), makes them a novel asset class with few tools at your disposal to ease the burden of filing.

Many CPAs are wary of approaching cryptocurrency tax filings with legitimate cause for avoiding them. However, the growth of cryptocurrency investors is continuing on its upward trajectory, creating profitable opportunities for CPA practices. With more than $18 billion raised by initial coin offerings (ICOs) in the last year, understanding the nuances of the market and the underlying technical components of the industry is a prudent strategy.

Millions of U.S. citizens have invested in cryptocurrencies, and adequately marketing your services to them can establish your practice as an authority in the space, bring in a new revenue stream, and help expand your services to existing customers.

With technological complexity and misleading narratives prevalent in the cryptocurrency sector, here are four tips for CPAs who are looking to offer cryptocurrency tax filing services to their clients.

1. Learn the basics of the underlying technology: Attempting to understand the underlying technology of cryptocurrencies can seem like a daunting task. However, as a CPA, you do not need to understand all of the technical nuances of every cryptocurrency or their cryptographic primitives. The best strategy is to enhance your knowledge of the first cryptocurrency — Bitcoin — which still retains a large majority of the overall market share. Subsequently diving into other popular, but different, platforms like Ethereum can help expand your knowledge of the industry further — as ICOs are primarily launched on Ethereum. Finally, taking note of the transaction models of Bitcoin and Ethereum is probably the optimal route for understanding the portions of the technology that are relevant to CPAs. The IRS classifies cryptocurrencies as property that is subject to capital gains tax, meaning that purchase, sale, mining, and trading are all taxable events. Familiarizing yourself with how basic transactions in Bitcoin work can help you grasp the more esoteric concept of mining and what constitutes income received in Bitcoin versus an investment.

2. Adapt your bookkeeping practices to remain narrow: Since Bitcoin is treated as property, bookkeeping can quickly become complicated if you’re not prepared for clients coming to you with hundreds of transactions they need to report. Every crypto transaction is a taxable event that results in capital gains or losses. However, payments in crypto (i.e., for goods and services) are treated as an ordinary income at the market price when received or sent. Regulations can vary drastically in different regions, so paying attention to details, particularly in different states, will help you avoid any legal errors. The concept of airdrops, forks, and mining are also challenging to understand. However, reporting them as taxable income is the best method that correlates to the IRS policy, and mining hardware equipment can even be deducted as a business expense.

3. Use cryptocurrency tax software: Following efficient bookkeeping practices, using cryptocurrency tax software can be an enormous boon for filing your clients’ crypto taxes. Platforms like ZenLedger aggregates and filters all crypto transactions from wallets, exchanges, and mining that can be imported into our software and even used with TurboTax. The software then calculates gains/losses and auto-fills necessary tax forms like the 8949, Schedule D, FinCen114, and FBAR.

4. Market your services to cryptocurrency investors: Many cryptocurrency investors are novice investors or are actively searching for tax services because they do not know how to file their own taxes. Credit Karma reported that although investors lost big on Bitcoin in 2018, most of them have no idea how to claim losses correctly. Connecting with investors through online venues like Bitcoin Reddit or Bitcointalk.org can help give you more exposure and even connect you with technical experts to expand your knowledge. Establishing a Medium blog or answering crypto tax questions on forums like Quora can also help to confirm your expertise and authority in the space. Building a strong reputation can help you get on registries for crypto tax services, which are excellent for placing you next to other well-known CPA services in the industry.

Cryptocurrencies are an emerging asset class with some compelling long-term potential. The opportunities for CPAs to tap into the growing set of investors in the sector are evident. The IRS currently considers cryptocurrencies property, which may be straightforward now, but the regulatory landscape is still subject to further evolution. Participating in cryptocurrency taxes requires continually adapting to the industry.

Gearing up to offer crypto tax services to your clients can seem daunting, but with the right approach and a robust understanding of some of the overarching technical aspects, you are well on your way to expanding your CPA services and bringing in more revenue for your practice.