Crypto

What Investors Should Look For In A Crypto Tax Advisor

Taxes and crypto-taxes are a complicated and somewhat confusing aspect of entering the blockchain and crypto-asset space. With millions of Americans having bought, sold or traded crypto-assets in 2022, despite the sharp drop in prices during this period, it is clear that crypto has definitely arrived in the mainstream financial conversation. As virtually all mobile trading apps, let alone institutional trading brokers, enable or permit crypto trading and transactions, the ease with which investors can gain exposure to crypto has increased significantly.

Even with the fluidity with which crypto can be accessed, minted, traded, or used for transactional purposes, the tax implications of these activities are still something that may come as a surprise to investors. In the world of taxes, surprises can result in large and unexpected tax liabilities; not a desirable outcome for individual or institutional users of crypto-assets. With every transaction, minting event, mining operation, transfer, or exchange of taxable crypto-generating activity, tax bills can pile up quickly. Numerous examples of this tax treatment taking taxpayers by surprise are widely available, which raises the following question.

CPAs and tax preparers are always in high demand during tax season, and the crypto tax niche tends to be even more overbooked, potentially opening the door for unethical players to seize on this growing demand. Let’s look at some of the factors that investors of all sizes should consider when looking for a crypto tax professional.

Experience against experience. Working with a tax professional is always an iterative process, and the crypto tax space is no exception to this rule. A preparer may have significant experience preparing, filing, and handling general tax issues, but given how quickly the crypto space continues to evolve, it makes good business sense to learn about the direct experience with cryptography. In other words, one of the first questions to ask in introductory conversations is what is the tax professional’s experience with crypto taxes in particular.

Especially for a client who might have a slightly complicated tax situation, incorporating crypto transactions and/or activities can further complicate the tax process. An additional factor that investors and advisors need to communicate about consistently is where the majority of trading activity takes place. Different exchanges have different policies regarding 1) the amount of information released to the market, 2) the frequency of said data, and 3) the ability of users to verify and/or confirm such information.

Active crypto experience. Building on the previous point, another important question to ask early in the conversation is what practical experience the tax preparer has, outside of serving clients. Many of the problems and potential pitfalls that could trip up taxpayers are only truly understandable if everyone involved has solved them on their own. Wallet security, private key management, non-fungible token (NFT) minting, crypto-asset staking and mining can only be fully understood if the individual in question has been involved in these activities before.

When looking for a tax advisor to help you navigate the often volatile and fast-paced crypto-asset space, one of the most important qualifications is how deeply the tax preparer has been involved in crypto. This is not to say that every tax preparer should be an expert in all aspects of crypto, but in order to provide objective and knowledgeable advice, the tax professional should have dealt with it themselves. Even for seemingly simple transactions, such as stablecoins used for trading, there are a number of indirect reporting and compliance factors that preparers should be aware of and help clients manage effectively.

Comfortable with ambiguity. Tax and tax preparation can be considered both very simple and transparent, while requiring some skill and comfort with ambiguity. The tax code is written with multiple exceptions, exclusions, and other nuances that preparers should 1) be aware of and 2) be comfortable with. Adding crypto into this conversation only further complicates this reality and increases the amount of ambiguity that preparers and investors need to be comfortable with.

Preparing crypto statements is, on the one hand, a very clear and transparent process; every transfer or transaction involving crypto creates an income tax return and potential payment obligation. Even though crypto-specific tax guidelines and tax code updates have yet to be released, tax authorities around the world have been proactive in pursuing individuals and institutions that attempt to evade tax obligations. . A well-qualified crypto tax preparer must not only be comfortable with ambiguity, but must also be comfortable communicating with clients, regulators, and peers on these matters.

As crypto-assets continue to integrate with financial markets, payment processors and a host of mobile apps, the importance of selecting and working with a qualified tax preparer will only grow in importance. . Due diligence, as always, is an important part of the process, and being proactive will enable investors, CPAs, and tax preparers to succeed in the future.

#Investors #Crypto #Tax #Advisor #Crypto

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