As the popularity and use of cryptocurrency continue to grow, so do the questions surrounding its taxation. One aspect many crypto owners often overlook is the tax implications of their holdings. Unfortunately, this oversight can have serious consequences.
Of course, it’s never intentional to leave a part of your income unreported or make mistakes while calculating your crypto gains. Still, you don’t get to tell the tax man that when he’s slapping hefty fines, penalties, interest and possibly criminal charges on you.
In my day-to-day work as a crypto tax advisor, I see a lot of clients come to me only after they’ve gotten into problems with the IRS, and I seriously wonder why. Crypto taxes are inherently complicated, so you need to ensure you’re getting it done right.
Before we continue, I’ve got to say this; if you have several transactions in crypto or have crypto investments, it’s a wise choice getting a tax advisor for cryptocurrency to save you from the hassle of learning and keeping up with all the moving parts of your taxes.
Another tax season is coming. Another huge fine may accompany it if you don’t get your taxes right once and for all.
You, my friend, didn’t get into crypto to spend your profits to pay high taxes. And you don’t want have problems with the IRS or your state tax department due to lack of knowledge in crypto taxation or making tax mistakes. If anything, you’re probably out to save money in taxes—another reason to consider hiring crypto tax advisors who know the crypto space.
Before we continue, let’s answer the question of whether you need a cryptocurrency tax advisor.
8 Key Questions To Help You Decide Whether Or Not To Hire A Crypto Tax Advisor
Not sure if you need the services of a tax advisor yet? Here are key questions that can help you assess your position and help you make the best decision for you:
1.) Am I Confident In My Ability To Accurately Report My Crypto Transactions?
Preparing crypto taxes can be a complex process prone to errors. You already know how important it is to accurately report your cryptocurrency transactions and calculate your capital gains and losses. One miscalculation and you’re losing deductions and credits and you’re paying more taxes. A tax error or misapplication crypto tax law that results in under-reporting your gains can result in paying fines, penalties and interest after a stomach-sickening experience with the IRS.
If you are comfortable preparing your own tax returns and feel confident in your knowledge of tax laws and regulations, you may not need the services of a tax advisor. A crypto tax advisor can be a valuable resource if you are unsure or uncomfortable with this process.
2.) Do I Have A Complex Tax Situation?
If you have a relatively simple crypto tax situation, you may not need the services of a tax advisor. However, if you have a complex tax situation, you’re better off getting the help of a professional like a CPA, crypto accountant or Enrolled Agent.
So what exactly is a complex crypto tax situation? You have a complex tax situation if you have a fair number of crypto transactions, high-volume crypto mining activities, multiple cryptocurrency trades, a significant amount of capital gains, or errors in your filed returns.
3.) Do I Have The Time To Devote To Learn Crypto Taxation And How To Prepare Complex Tax Returns?
Do you have a lot of time to devote to preparing your crypto tax returns? If you are short on time, a cryptocurrency tax advisor may be able to take care of the process for you, saving you time and stress.
4.) Do I Expect My Crypto Tax Situation To Become More Complex In The Future?
If you anticipate that your crypto tax situation will become more complex over time, it may be worth hiring a tax advisor now to help you navigate the process.
5.) Does It feel like I’m Paying Too Much In Taxes?
Do you feel like you are paying too much in taxes on your cryptocurrency gains? If you feel like you are paying too much in taxes, a tax advisor for cryptocurrency may be able to help you minimize your tax burden.
While hiring a crypto tax advisor may not automatically guarantee tax breaks, at least you can be certain that you won’t have to spend extra on taxes.
6.) Does My Current Tax Preparer Have Experience With Crypto Taxes?
You may as well make your mistakes yourself rather than pay someone to make them. Not all tax preparers, accountants or CPAs can help you accurately file your crypto tax returns.
It’s important to work with a tax advisor who understands the specific tax rules that apply to cryptocurrency.
7.) Am I Willing To Pay For The Services Of A Crypto Tax Advisor?
You’re probably thinking of the cost implication of hiring a tax advisor; if you are, you wouldn’t be wrong too. After all, the services of a tax advisor aren’t free or cheap either.
Plus, while hiring a tax advisor may save you money on your taxes, it is not a sure guarantee. But hold your train of thought. Think of the potential losses that can come from the IRS penalizing you and the cost of emotional turmoil and stress that will create.
Now, weigh the cost of their services against the potential penalties that could result from erroneous reporting.
8.) Am I Comfortable Sharing My Financial Information With A Cryptocurrency Tax Advisor?
You will need to provide detailed financial information to your tax consultant, so it’s important to be comfortable sharing this information with them. That’s why it’s important to only work with an advisor you trust and feel comfortable communicating with.
What Are The Benefits Of Hiring A Crypto Tax Advisor Near Me? -Here’s 6 Advantages…
In more ways than one, a crypto tax professional is a valuable asset to any crypto investor, trader, or miner. Here are the reasons:
1.) Crypto Tax Expertise – So You Can ‘Sleep Well At Night’
One of the main benefits of working with a tax advisor for crypto is their expertise in this specialized area of taxation. Cryptocurrencies are a relatively new asset class, and the tax laws surrounding them are still evolving. The IRS doesn’t give guidance on the tax treatment in various types of crypto activities and transactions. Therefore, you need a tax expert who can correctly and legally apply current tax law to cryptocurrency, so you don’t find yourself in a mess with the IRS.
You must be willing to keep up with the ever-changing tax laws of the crypto space if you decide to do all the accounting and tax compliance yourself. If not, you’d be setting yourself up for a costly problem down the road that you’ll kick yourself for.
A crypto tax advisor, however, relieves and absolves you from having to keep up with the numerous IRS tax laws and guidance for virtual currencies.
2.) You Save Time – So You Stay Focused On What’s Most Important To You And What YOU Do Best (It’s Probably Not Tax Work.)
You don’t want to be in ‘hair-pulling’ frustration at 2:30am in the morning trying to get your taxes done. Preparing your own crypto taxes can be time-consuming and confusing. You could spend dozens of hours only to realize, it’s probably not done right and you’re risking costly tax mistakes. A crypto tax advisor can handle the task for you, freeing your time to focus on other things.
You certainly don’t want to spend your time learning about virtual currency taxation, tax codes, tax treatments for different crypto transactions, compliance standards for mining businesses, and all when you could invest that time increasing your crypto earnings.
You want to spend the extra time growing your cryptocurrency portfolio rather than getting an uncertified degree in accounting and bookkeeping.
3.) You Avert Expensive Tax Mistakes
Hiring a tax advisor for cryptocurrency can help you limit your tax errors to zero by helping you accurately report your crypto transactions, thereby avoiding costly mistakes.
Truthfully, the crypto tax rules can appear knotty in many cases. According to the IRS, crypto profits may be subject to capital gains taxes in some cases and income taxes in others. This means that the tax treatment of your crypto profits isn’t always the same, making it all the more complex.
And even if you understood how to differentiate the two, correctly recognizing the transactions that qualify as taxable events under the IRS can prove tricky. If you’re someone who does several crypto transactions or runs a crypto-related business, you’d find out that figuring out by trial and error what qualifies as a tax-reportable can easily lead to cryptocurrency tax mistakes.
A crypto tax preparer will ensure you receive all the credits due to you and help you avoid major tax blunders.
4.) You Can Save A Lot Of Money In Crypto Tax And Build Your Wealth Faster
Crypto tax advisors save you money by identifying potential tax deductions or credits you may be eligible for, thereby maximizing your returns and reducing your tax burden.
What do I mean? For example, if you use cryptocurrency for business purposes, you may be able to claim deductions for expenses related to your cryptocurrency activities. A crypto tax professional can help you identify these deductions and ensure that you are claiming them correctly on your tax return.
A crypto tax advisor can also help you create a tax strategy that maximizes your savings and helps you build wealth.
For example, if you are planning to sell a large amount of cryptocurrency, a crypto tax expert may be able to help you structure the sale in such a way that minimizes your tax liability.
5.) Can General Accountant Or Tax Preparer Help Advise You On Crypto Tax And Accounting?
Don’t be tempted to think a generalist tax preparer is the same as a crypto tax specialist. Every day on the job, I witness crypto errors made by not just the individual taxpayers reconciling multiple crypto transactions themselves but by their CPAs and accountants too.
And it’s expected as the laws guiding the reporting process of crypto gains are way more complex than regular income.
For instance, a skilled crypto taxation advisor will use various accounting methods to minimize your tax liability and ensure that you are paying the lowest amount of tax legally possible.
Whereas many generalist accountants will quickly recommend the First In, First Out (FIFO) accounting method for accounting purposes which is incorrect and can result in clients paying thousands or even tens of thousands of dollars more in taxes than they are legally required to pay.
6.) You Gain Peace (And Cut-Out Stress)
In addition to the practical benefits of hiring a crypto tax advisor, there’s also the psychological benefit of using a tax advisor for cryptocurrency. Filing your taxes can be stressful, especially if you’re not confident in your ability to do it correctly.
One thing is inarguable; you don’t need the added stress of monitoring your tax returns. The market volatility associated with the crypto market is enough mental strain on its own.
Thankfully you don’t. By outsourcing your tax duties to a tax advisor for cryptocurrency, you can focus on other aspects of your financial life and have peace of mind knowing that your taxes are being handled correctly and efficiently.
If You're Seeking A Cryptocurrency Tax Advisor, Use These 8 Tips To Find And Hire The Best One (that meets your needs)
Now’s the time to find the right crypto tax advisor for you. The next tax season is almost here, and you don’t want to fall prey to the IRS again. Use these nine tips to help you find and hire the best guy for the job:
1.) Determine Your Tax Needs
Before looking for crypto tax advisors, take some time to think about what you need and expect from a tax advisor. Consider your financial situation, the complexity of your crypto tax situation, and your budget before googling up crypto tax advisors near me.
2.) Hire A Crypto Tax Advisor Who Understands The Crypto Space
If you decide to outsource your crypto tax returns to a tax specialist or CPA, the first thing you want to confirm is their specialty. The accounting landscape has become more sophisticated, with many accountants now having their own specialties.
Even under the tax category, different tax professionals have extensive experience managing different aspects of taxation. You want to ensure that you hire a tax expert that understands the crypto industry and has specific expertise in handling crypto-related taxes.
They’d need to have basic knowledge of multiple cryptocurrencies, not just bitcoin. Your crypto accountant should know the difference between activities like trading, liquidity, mining and the tax treatment for each. They should also have experience with filing an FBAR.
Look specifically for an advisor who understands the specific tax rules that apply to cryptocurrency and has experience helping clients minimize their tax burden.
3.) Research Their Reputation
Many tax preparers masquerade as tax advisors simply because they know a thing or two about filing returns and have a preparer tax identification number from the IRS. You don’t want to hire those types. Unfortunately, the market has a lot of them.
Look for reviews or testimonials from previous clients to get an idea of the tax advisor’s reputation.
Be sure your tax advisor for cryptocurrency is qualified to provide tax advice. The IRS maintains a tax directory where you can locate experts with certifications.
Results Tax Accountants, for instance, consist of crypto tax CPAs, cryptocurrency specialized accountants, Enrolled Agents (IRS credentialed professionals) and cryptocurrency tax advisors. When you work with us, you get an ‘all-in-one,’ comprehensive, “one-stop shop” for all your cryptocurrency tax and accounting needs.
4.) Schedule A Consultation
Many tax advisors offer free consultations, so take advantage of this opportunity to meet with the advisor and ask any questions you have.
Be sure to get all agreements in writing, including the fee structure and the scope of services. This will help protect your interests and ensure you are clear on what you can expect from the advisor.
5.) Ask Your Crypto Tax Professional About Their Cryptocurrency Software and Gains/Losses Reconciliation Process
It’s important to keep in mind that not everyone is up to speed on the latest and greatest in the world of crypto and blockchain.
If you’re working with a tax accountant to track your crypto gains and losses, ensure they’ve got the right tools for the job. If they’re trying to do everything by hand, that could be a red flag.
Trust me, keeping track of all those different coins and exchanges without some specialized software is virtually impossible. Don’t take any chances with your finances. Get a tax preparer with the right team and tools to get the job done right.
6.) Hire Someone Who Understands And Can Work Their Way Around Your Unique Crypto Transaction Need
The SEC considers some cryptocurrencies as “securities,” meaning they must be registered or exempted.
If you operate an online platform that sells these types of cryptocurrencies, the SEC may require your platform to be registered as an “exchange” and the individuals running it to be registered as “broker-dealers” or “investment advisers” under federal securities laws and the Investment Advisers Act.
Cryptocurrencies are regulated by two main federal agencies: the IRS and the SEC. The IRS primarily focuses on the use of cryptocurrencies as a form of payment and the tax implications of crypto transactions.
In contrast, the SEC focuses on issues related to investors, investment advisers, exchanges, and capital markets.
Your tax advisor for crypto must know all these, be familiar with these agencies’ current guidance, interpretations, and enforcement processes, and know how to get around them should you ever have an issue.
7.) Consider Your Budget
You’ve probably already googled up “crypto tax advisor near me.” By now, you’d have noticed that the few that exist charge extremely high fees due to the shortage of crypto tax experts available and the daunting peculiarity of their jobs.
When considering the option of hiring a crypto advisor, be sure to ask the right questions, such as the modalities of payment, their pricing, their subscription plan, the services included in their fees, and if they charge by the hour or if they have a fixed fee.
Having all of this information at hand will help you assess and make a final decision.
Be ready to spend money to save more money if you hire an advisor for crypto tax. In the long run, the benefit will always far outweigh the cost of hiring one.
8.) Hire Someone You Like
Be sure you hire someone you like and would enjoy working with. Much like your attorney and investment advisor, your crypto financial tax advisor should be someone you are comfortable calling. You want to be able to easily communicate your questions, fears, and issues without fear.
Frequently Asked Questions
Still confused about something? Here are some of the most popular questions from crypto traders, investors, and miners on crypto taxes:
1.) Would A Crypto Tax Advisor Help Me Save Money In Taxes?
Hiring a tax advisor can be a helpful resource for individuals looking to save money on their taxes. However, whether or not your tax advisor will actually help you save money on your taxes depends on your individual circumstances.
If you have a relatively simple crypto tax situation, you may not need the services of a tax advisor. If, on the other hand, you have a more complex situation, then you may want to hire a crypto taxes advisor to reduce the odds of running into issues with the IRS.
2.) How Can A Cryptocurrency Tax Advisor Help Me?
Most cryptocurrency accountants are well-versed in state tax laws and can handle just about any tax return, including relatively simple crypto transactions.
But where a crypto-savvy accountant really shines is in finding ways to save you money on your taxes. They might suggest things like “tax loss harvesting” to offset capital gains. These strategies can make a big difference in the money you eventually pay.
3.) Can A CPA Do Crypto Taxes?
A generalist Certified Public Accountant (CPA) is certainly no stranger to the world of taxation. However, it gets more complex when the tax situation demands expert knowledge of specialized industry laws and regulations like the crypto industry does. It’s why it’s always advisable to get a crypto tax specialist to handle your tax filing.
4.) What Happens If I Don't File My Crypto Taxes?
If the IRS audits you and discovers that you failed to file your taxes or report a crypto-taxable occurrence, you may incur interest, fines, and even possible criminal charges.
5.) What Are Some Other Ways I Can Reduce My Crypto Taxes
Here are some ways you can minimize your crypto taxes:
- Offsetting gains with losses.
- Holding your crypto long-term.
- Invest in crypto using a retirement plan.
- Claiming mining expenses.
- Time selling your crypto.
- Donating some of your cryptos to charity.
Hiring a crypto tax advisor is a big decision. Given the complexities of blockchain and crypto accounting, hiring a professional knowledgeable enough to help you navigate the deep, murky waters of the crypto tax space is a smart choice.
Don’t let the fear of not understanding the tax implications of your cryptocurrency holdings hold you back. Let our team of experienced crypto tax advisors help you stay compliant and minimize your tax burden. Contact us today to schedule a FREE consultation and get the peace of mind you deserve.