Cryptocurrency is an exciting new technology, and like most cutting-edge technologies, there are constant changes to the functionality, utility, and environment. Take the Ethereum network for example. What started out as a network with one native currency, ETH, now hosts a plethora of different projects on the network as ERC-20 or similar tokens. Layer in the creation of NFTs and the Ethereum network is nearly unrecognizable from the network’s genesis block. As you can see, the cryptocurrency landscape is changing quickly and with an increase in interest and users, it will only continue to grow. Naturally, as the world of cryptocurrency grows, so does the work it takes to correctly report your cryptocurrency taxes. Let’s explore only a few benefits of hiring a crypto CPA next tax season.
Consider Your Volume of Transactions
As your interest in cryptocurrency projects increases, so will your activity on different blockchains. All of that activity comes with a lot of transactional data that will need to be reconciled in order to properly file your taxes. As your volume of transactions grows, you’ll need to closely keep track of your earnings.
By engaging a Crypto CPA early on in the process you can ensure all of your transactions are reconciled over time, instead of scrambling to do so at the end of the year. While this may seem insignificant, it provides one key benefit: the ability to see where your tax position sits prior to year-end. If your position is taxable you may be able to execute tax-loss harvesting strategies that can reduce the amount of cryptocurrency tax due.
The Complexity of Transactions
Even if you are not trading cryptocurrencies in high volumes you may find yourself entering complex transactions. Complex transactions on cryptocurrency include: buying an NFT, staking your tokens, and wrapping your tokens.
Each of these transactions is unique and, at times, can be taxable at different rates. Take purchasing an NFT as an example. If it is deemed a collectible it is taxed at the collectibles rate of 28%, instead of taxed at capital gains rates. These are the types of transactions a Crypto CPA can ensure are reported correctly.
Pros of Hiring a Crypto CPA for Cryptocurrency Taxes
As mentioned, a Crypto CPA will have a wealth of knowledge about cryptocurrency transactions. In addition to that knowledge, they’ll be able to provide you with expert guidance and documentation to support your tax positions. The sooner you engage your Crypto CPA the sooner you can reap the benefits of working with one.
Our Recommendation: Hire a Crypto CPA
Although next tax season seems far away, it’ll be here before we know it. The sooner you engage a Crypto CPA the sooner you’ll be able to realize the benefits which include but are not limited to greater insight into your tax position prior to year-end, calculating the correct tax liability by transaction, and proper documentation for filing your taxes.
If you have additional questions about choosing the Crypto CPA, don’t hesitate to reach out to our team at Founder’s CPA for guidance!
November 27, 2023