Cryptocurrency is a hot topic worldwide, especially as the prices of Bitcoin (BTC), Ethereum (ETH) and other cryptocurrencies reach higher thresholds and result in another banner year for investors. While the earnings look good on paper, there is often one factor to consider, which is crypto taxes.
It is not uncommon for traders to take advantage of the constant swings, buy the dip, sell the uptrend and repeat it many times. Unfortunately, every transaction is considered a taxable event, making the conversation about cryptocurrency taxes daunting.
The impending cryptocurrency tax crackdown only fuels the need to start the conversation. This crackdown is far from recent, with 2021 headlines from an IRS chief stating the country lost trillions of dollars in unpaid taxes every year, a significant portion of which was attributed to the crypto market. For this reason, several subpoenas currently exist against Coinbase, Kraken, and Poloniex in the US, requiring these exchanges to share the information with the IRS.
Events like this have since led to more recent announcements by the IRS seizing billions of dollars of cryptocurrency that may be related to tax fraud. While some of these tax evasion actions may seem extreme, especially when compared to their own calculation errors, it is always those who deliberately evade taxes that could be affected by the imposition of crackdown.
The IRS and crypto investors
The IRS has acknowledged that more investors are now participating in the digital currency market than ever before, a move that is partly hype and many parts attributed to the amount of money the government has spent during the COVID-19 pandemic. With more discretionary earnings in the hands of investors, the number of crypto traders in the US has reached an all-time high and continues to grow. Currently, an estimated 55% of US investors are believed to own Bitcoin, according to Grayscale investments†
Recognizing this, the 2021 version of IRS Form 1040 now asks recipients if they have received, sold, bartered, or disposed of another financial interest through virtual currencies at any time during the year. Users must then tick the “Yes” or “No” box in response. The IRS further proves their crackdown by posting this question on the form, right below a taxpayer’s name and address, a location not to be missed. The language has also been clarified to specify that only taxable events, including receiving cryptocurrency as payment, airdrops, exchanging various cryptocurrencies, selling assets, earning from mining and staking, will be marked as a “yes” on the updated form. classified.
The consequences of the great layoff
After checking yes comes the more challenging step of crypto tax management, figuring out the balance due. The IRS has informed that cryptocurrency/virtual currencies are considered property. Therefore, users must acknowledge and report all taxable gains or losses, failure to do so results in possible audit, interest payments and rare penalties in extreme circumstances. As a result, many have turned to a professional crypto accountant for guidance.
In a traditional, pre-pandemic year, 15% of the staff has left one of the four major accounting firms, including Ernst & Young (EY), Deloitte, KPMG and PricewaterhouseCoopers (PwC). While it’s not certain whether these metrics will remain the same this year, many companies agree that the turnover rate will be higher than in previous years.
This year, after another year in the pandemic, the profession as a whole has been overworked and underpaid. As a result of the ongoing economic trend called the Great Resignation, an estimated 40% of accountants have left the CPA industry, leading to an overwhelming shortage of professionals. Traditionally, as the laws of supply and demand dictate, reduced supply means higher prices, and thus a smaller chance of an investor getting the help he needs with his taxes.
Of course, even those who have the money to hire a CPA can still struggle to find one with the crypto tax expertise to help.
Managing Your Cryptocurrency Taxes
With fewer resources available, the issue of paying cryptocurrency taxes doesn’t necessarily mean that users have to navigate the complex tax landscape on their own. Instead, the release of new crypto tax software has simplified the process for users to organize their crypto data and calculate their tax liability.
One of these offers is: awarda cryptocurrency tax software with over 400 integrations, including Binance, BitMex, Kraken, and Tron, that allows users to access data in one consolidated location, automatically calculate a crypto trader’s profits and losses, and classify transactions such as decentralized financial (DeFi) staking, margin trading and mining.
More insights about Accounting here
As one member of their team describes it: “Accointing is an easy-to-use and beautifully designed platform built to help users handle crypto taxes on their own, without the need for a CPA to process data. Users can submit their annual income and taxable profits to the IRS by submitting the output of Accounting’s crypto-tax calculator to a CPA, or through the dedicated TurboTax output.”
As a result, users can generate a custom cryptocurrency tax report for their country of location in just five clicks. Investors can also use the “holding period tool” to optimize trades, recognizing which tokens have been held for a year or more.
Offerings like Accointing allow users to navigate the grueling tax landscape of the cryptocurrency world and avoid the battle for a dwindling accounting power.
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