Cryptocurrency can result in stressful situations when it comes to filing taxes. There are so many variables in play at any given time. If you’re not experienced, it’s advisable to hire a cryptocurrency tax accountant to assist you with the process. Did you know that every single one of your cryptocurrency transactions has tax and accounting implications? Consider the fact that crypto prices can fluctuate 10% or more on any given day.
We’ve outlined some tips and best practices to make it easier on your crypto tax accountant.
Keep Records of Your Transactions
Ignoring your recordkeeping responsibilities isn’t ideal when it comes to cryptocurrencies. Many people assume that the blockchain will automatically document each transaction and its accompanying details. Instead, blockchains act as a permanent record of your letters and numbers that can be examined through a block explorer. Blockchains, however, are not people-friendly. As a best practice, you can copy and paste your transaction information into a spreadsheet that you pass onto your trusted accountant.
Only Use One Exchange
It can be tempting to use a variety of exchanges but it only introduces additional complications for both you and your crypto tax accountant. Using more prices from different sources, the more complicated your tax filing process will be. First of all, every exchange that you use has a data output in a different format. This increases the chances of errors when your accountant is combining your CSVs. In addition, this is a time-consuming and manual task that will make the process take longer and become more expensive.
Maintain Good Wallet Hygiene
Staying on top of your wallet hygiene is very important for both experienced and novice cryptocurrency traders alike. It’s helpful to your accountant so they can better understand your workflow as they process and file your taxes. Even though it might not seem like holding your digital assets in one location is ideal, this isn’t always ideal. Make sure to keep transaction-specific wallets such as revenue, investments, and DeFi transactions. Miners should also keep a secondary wallet to hold mining rewards.
Automate When Possible
You can also eliminate as much uncertainty as possible by using software to automate and streamline as many transactions as you can. Although it might seem like additional work up front, working ahead of time can streamline and automate as many processes as possible. As cryptocurrency becomes more popular and commonplace, there will be more accessible solutions such as software on which you can rely.
Talk to Your Accountant Regularly
As you are tracking your activity across exchanges, blockchains, and wallets, you’ll still want to have regular and open conversations with your cryptocurrency tax accountant. Crypto taxes can quickly become complicated and time consuming, so it’s important to be transparent with your accountant and keep them updated.
Need a Seasoned Crypto Accountant?
If you’re looking to partner with an experienced crypto tax accountant ahead of tax season, look no further than our team at Founder’s CPA. Over 150 startups and small businesses rely on our services every year. Don’t hesitate to contact us ahead of this year’s tax season to learn more about how we can help.
November 22, 2023