Tax - The Borderless Accountant

IRS Form 1099-DA: What Taxpayers Need to Know

Posted on October 3, 2023October 3, 2023 by Ira Sogani

For taxpayers, navigating IRS forms is complicated enough as-is. Now that new tax reporting rules for centralized crypto exchanges have been proposed, another document covering these regulations is available for review.

Unless you’d prefer to read through the official 282-page document surrounding 1099-DAs, I’ve broken down the need to know below. For context, DA refers to Digital Assets.

1099-DA Background Information

Since the popularization of cryptocurrency, the IRS has been on the lookout for unreported income through audits and other means. To maximize compliance and transparency, the proposed 1099-DA form will be required by “digital asset brokers” starting in January of 2026.

In the meantime, the IRS plans to accept, and possibly incorporate feedback from the public. For this reason, we can get an early look at these new requirements.

What Constitutes a Digital Asset Broker?

Although the aforementioned document includes an in-depth explanation of what a digital asset broker means, they are primarily referring to centralized and decentralized exchanges, physical ATMs and kiosks that deal in cryptocurrency, and wallets that allow for crypto trading, buying, and selling.

Specific examples include, but are not limited to:

• Uniswap
• Binance
• Coinbase
• Crypto.com
• Gemini and beyond

The Effect on Taxpayers

On a high level, 1099-DAs give the IRS a third-party view of your crypto activity with a focus on taxable events. From there, they compare what you’ve reported to the new records they have on file.

As a taxpayer with crypto activity, this means sorting out various 1099-DAs across any wallets or exchanges you may use. From there, the IRS can conduct information matching to determine any inaccuracies or penalties. The information here includes cost basis payments, dates for trades such as acquisitions, proceeds, and more.

Given that the form will go into effect January of 2026, any activity after January 1st, 2025 would be captured by the 1099-DA. Although this includes the first year of activity, the additional transparency will also help the IRS identify previously unreported income, a reminder of the importance of thorough crypto tax reconciliation with your accountant.

Projected Problem Areas

Given that many people use multiple crypto exchanges, 1099-DAs are likely to create administrative headaches surrounding tax time. These include:

• Self-transfers that may appear as taxable sales

• Missing numbers across exchanges from unshared information

• Overstated gains through differing cost basis calculation methods and more

According to the official document, “written or electronic comments must be received by October 30, 2023.” Although there is still time as of this article for changes based on public feedback, the proposed regulations as they stand do not adequately address these concerns.

As a result, taxpayers are at risk of overpaying due to a miscalculated tax liability or underreporting their digital asset income, thereby increasing their chances of an audit.

Upon closer inspection, these reports seem to alleviate taxpayers from conducting their own calculations. Instead, however, problems arise from individuals with multiple exchanges as well as those with historical inaccuracies for even a single exchange. Additionally, universal calculations that were once accurate may show up differently on the official reports due to differences in cost basis calculations, as mentioned above.

These challenges further increase the importance of a seasoned crypto tax accountant to avoid costly mistakes.

Staying in Compliance

To avoid the reporting pitfalls of multiple 1099-DAs, I encourage you to consider my borderless crypto tax services, available through my website.

As a crypto tax accountant who is always current on the ever-evolving regulatory landscape, I can take the time-intensive burden of crypto taxes off your plate. Ultimately, these new reporting rules give the IRS even more tools to identify noncompliance. From there, even seemingly minor reporting mistakes could lead to a major audit. Together, we can avoid the myriad of projected paperwork headaches associated with 1099-DAs.

Key Tax Benefits for Crypto Donor-Advised Funds (DAFs)

Posted on September 26, 2023September 26, 2023 by Ira Sogani

For proactive donors, the cryptocurrency space is oftentimes confusing — especially when it comes to taxes. For those seeking to maximize their impact while leaving a lasting legacy, however, understanding the tax benefits of crypto donor-advised funds (DAFs) is key.

These philanthropic vehicles operate in a similar manner as your own foundation, empowering you to mitigate your tax burden while supporting your favorite nonprofits. By using a trusted foundation, you can open a DAF and simplify the road ahead with confidence. Here’s what donors need to know.

How Do Crypto DAFs Work?

On a fundamental level, crypto DAFs allow donors to contribute digital assets such as cryptocurrencies or NFTs to support 501(c)(3) nonprofits. From there, these assets can grow and support the nonprofits through grants distributed at any time.

With additional options to stake eligible cryptocurrencies or even contribute cash, DAFs offer a high level of flexibility to amplify your social impact.

Why Open a DAF?

When it comes to growing and granting your assets, DAFs offer a myriad of immediate and long-term tax benefits. In turn, donors can enjoy exceptional tax efficiency while enabling charitable organizations to thrive. These tax benefits include:

Avoiding Capital Gains Tax

By contributing appreciated assets to a DAF, you can bypass capital gains tax while enjoying an immediate tax deduction based on the current value of the assets. In turn, donors can avoid the tax burden of selling an asset then donating the post-tax proceeds. As a result, you can maximize the power of your contributions.

Ensuring Tax-Free Conversions

With a DAF, you can store assets in a dedicated crypto portfolio with tax-free growth. When it’s time to donate, these assets can be converted to cash without incurring additional taxes.

Streamlining Tax Planning

Without a centralized place for tax planning and record keeping, donations can quickly get out of hand. As a result, past contributions and future tax efficiencies can fall by the wayside. Instead, DAFs bring everything together in one place.

About Issuing Grants

Another key benefit of DAFs is the ability to give grants to nonprofits of your choosing on your own timeline. While traditional donations operate on a one-time, fixed basis where charitable organizations receive an immediate distribution, flexible grants ensure that your charitable efforts make a meaningful impact over the long-haul.

As a result, you can help sustain various causes or projects over time. Select foundations allow for legacy planning as well to help successors who share in your values continue to make a worthwhile impact.

Do DAFs Incur Fees?

While sponsoring organizations include administrative fees to support the upkeep of your DAF, these fees are a small fraction of the taxes associated with alternative approaches. These fees cover various aspects such as record keeping, due diligence, and other operational considerations.

Where to Get Started

If you’re interested in opening a donor-advised fund and elevating your charitable efforts, I highly recommend the Givepact Charitable Foundation. As a certified tax-exempt 501(c)(3) organization, they empower donors to unlock the full advantages of DAFs with ultra-competitive administrative fees, a portion of which supports their social impact decentralized autonomous organization (DAO).

For questions surrounding DAFs, crypto tax services, and beyond, I invite you to reach out today. From there, we can explore your charitable goals and discuss your options.

Why Hiring a Crypto Tax Accountant is Essential

Posted on August 31, 2023August 31, 2023 by Ira Sogani

Today, the importance of accurate crypto reporting cannot be understated. More specifically, proper crypto reconciliation, regulatory change upkeep, and tax compliance are each essential to avoid IRS warning letters, higher taxes, and beyond.

Unfortunately, even the most advanced crypto tax software can miss the mark, leaving individuals and businesses that utilize crypto with errors and audit red flags. Through the help of a tax accountant who specializes in cryptocurrency taxation, however, clients can avoid a myriad of costly errors. Here are the key benefits of hiring a dedicated crypto tax accountant.

Where Crypto Tax Software Falls Flat

Despite their sleek user interfaces, crypto tax software comes at a cost far greater than any savings from the low monthly fee. For example, even after going through the exhaustive process of linking each wallet and exchange, your transactions still require an end-to-end manual review to ensure accuracy. If not, formatting errors in unsupported blockchain protocols can lead to missing data while internal transfers can appear as taxable events.

With countless transactions to sort through, the manual review process can take hours that could have been spent on your core competencies. The total number of transactions can increase significantly with DeFi given that a single transaction can appear hundreds of times without proper filtering on your crypto tax platform. The complexities behind NFTs also pose numerous questions, such as:

• Should gas fees be factored into the cost basis?
• Do reporting requirements change if the NFT is purchased with crypto versus USD?
• What about tax rules on NFT airdrops?

In many cases, crypto tax software fails to account for these critical questions. On top of that, phishing airdrops that are missed may appear as income on your crypto tax software, further increasing your tax burden. These are just a few of the unexpected consequences that crypto tax platforms can create.

The Hidden Costs of Crypto Tax Software

Although the low up-front costs of using a crypto tax software or even DIY-ing your crypto tax return are appealing, these savings are quickly eroded when you consider the high costs of errors and missed transactions.

For example, an exchange that is shut down could leave you without the data you or your software needs to file an accurate return. As a result, the transactional data from a forensic reconstruction will generally take a conservative approach. In turn, transactions that would have been classified as long-term gains will be reported as short-term gains, thereby increasing your taxes.

How Hiring a Crypto Tax Accountant Can Help

Before attempting to navigate your crypto tax report alone, consider the lost time and working capital that a crypto tax accountant can alleviate. Given that the IRS is paying closer attention to cryptocurrency each year, the probability of an audit is higher than with traditional tax returns. With a crypto tax accountant, however, you can reduce the chances of an audit by mitigating red flags. That’s all while putting transactions from across all of your wallets and exchanges into trusted hands.

Additionally, a crypto tax accountant can reconcile past returns, alleviating uncertainty and gray areas for uncompromising peace of mind. Here, the key benefits include crypto tax law compliance with the IRS to avoid costly penalties, maximizing deductions to optimize your return and recoup overpayments, and painting a clearer picture using historical data for better decision-making moving forward. Tax law compliance is especially key to avoiding the stress and burden of an IRS audit.

Hiring the Best Crypto Tax Accountant

Given the clear advantages of a crypto tax accountant, the question becomes choosing the right professional. Finding an individual with firsthand crypto experience is only the beginning. The best crypto professionals are those who also have an affinity for keeping up-to-date with the latest regulatory changes. This is especially key to maintaining compliance in the ever-evolving crypto space.

During the selection process, there is no substitute for experience. Proven crypto tax and blockchain accounting experience boils down to a diverse client base of traders, investors, businesses, and beyond across a mosaic of industries. Asking about current clients and recent changes in the crypto regulatory landscape is an excellent way to determine proficiency.

As you weigh your options, I invite you to explore my borderless crypto tax services through my website. Together, we can navigate past, current, and future returns with uncompromising accuracy. Get in touch today for a firsthand look!

Demystifying Crypto Tax Law

Posted on August 25, 2023August 31, 2023 by Ira Sogani

Ask any crypto tax expert and they’ll attest to the complicated nature of crypto taxes. Amid the constant regulatory updates, IRS enforcement is ramping up month after month. As a result, even genuine oversights such as a missing NFT sale can result in penalties. In general, the more complicated the crypto activity, the more complicated the return. As I’ve outlined in a recent article, complex transactions can even lead to errors within high-rated crypto tax platforms.

In many cases, hiring a crypto tax accountant can alleviate the burden of navigating crypto tax law. Whether you seek out professional support or decide to DIY your crypto tax return, understanding the ins and outs of the law is key. Here are just a few of the core intricacies that savvy individuals and businesses should know.

Categorizations as Ordinary Income

In general, crypto income is taxed using the same structure as salaries, business profits, or self-employment income. Whether you’re lending out cryptocurrency in exchange for interest, mining new coins, accepting crypto as a form of payment, staking to earn rewards, or beyond, these gains are subject to ordinary income tax. Here, the tax rate depends on several factors including filing status, taxable income, and more.

Categorizations as Capital Gains

As with stocks, crypto gains sold within 12 months are subject to a higher tax rate (short-term gains) while holding periods over 12 months enjoy a lesser tax rate (long-term gains). Likewise, losses can take advantage of tax loss harvesting, thereby reducing your overall tax burden. For example, a purchase of BTC for $10,000 that is sold for $8,000 would appear as a capital loss of $2,000. Cryptocurrencies that are held, however, will remain as unrealized gains or losses. Of note, short-term crypto gains follow the same tax structure as ordinary income.

DeFi Taxes & Reporting

DeFi tax laws and regulations are consistently on the move. Failure to report and pay these taxes can lead to lofty 25% penalties on a monthly basis for late payments — or even jail time. One of the most common misconceptions surrounding DeFi is that these exchanges are not traceable since they do not report to the IRS. Although the latter is true, your DeFi activity is in fact traceable by the IRS. Here, lenders will pay capital gains tax on any sold cryptocurrency collateral. Meanwhile, wrapping coins on a decentralized exchange is taxable. The same is true for deposits into liquidity pools.

From governance tokens to NFTs to yield farming, the complexities surrounding DeFi oftentimes go beyond crypto tax platforms, as I have outlined in a recent article. As a result, hiring a crypto tax expert to keep your returns in compliance can help prevent audit red flags and costly penalties.

Understanding Your Options

For many individuals and businesses, the complexities of carrying out a DIY crypto tax return or relying solely on a crypto tax platform come with inherent risks. In turn, savvy decision-makers turn to a crypto tax accountant for the confidence that comes from compliance. For more information surrounding the intricacies of cryptocurrency taxation, I encourage you to read my other articles.

When the time is right to put an experienced crypto tax expert in your corner, I invite you to explore my website. There, you can learn more about my borderless crypto tax services. Thank you for reading.

Crypto Tax Software [Common Errors & Choosing the Right Platform]

Posted on August 14, 2023August 31, 2023 by Ira Sogani

As the crypto space continues to evolve, strict compliance, correct transaction reconciliation, and accurate reporting are each essential. To streamline the process, crypto tax platforms have entered the market in droves. At the same time, these platforms aren’t without their errors.

What you’ll find in my recent article outlining the advantages of hiring a crypto tax accountant over relying solely on software is that these platforms have limitations. For example, an internal transfer could appear incorrectly as a taxable event, while inaccurate date-time information can result in price inaccuracies. While you can read more in the article, the bottom line is that there’s no substitute for crypto tax expertise.

Despite this, having the best possible crypto tax software for your transaction volume, experience level, and transaction types is key. In turn, I have outlined a range of options below to help with key tracking and filing considerations, such as crypto gains calculations, transaction classifications, and more. From there, you can find a range of common errors and how to avoid them.

Top Recommendation: CoinTracking

Well-equipped for a high volume of 50,000+ transactions, CoinTracking is a feature-packed tax calculator suitable for advanced users seeking full coverage for cryptocurrencies, NFTs, DeFi, and beyond.

Additionally, CoinTracking offers a variety of filters for improved clarity and oversight while supporting a wide range of API keys, an important inclusion to mitigate missing data. Meanwhile, CoinTracking’s versatile tax settings empower users to align their transaction classifications with local tax laws. The FBAR report is also supported as well. Coupled with an intuitive user interface, these features have made CoinTracking the top contender among the countless crypto tax platforms available today.

Runner Up: CryptoTaxCalculator

For slightly less experienced users who still have a firm grasp on cryptocurrency taxation, CryptoTaxCalculator is an excellent choice. With over 800 supported protocols and AI transaction classification recommendations, this platform is built for speed and accuracy. Although the FBAR report is not supported, CryptoTaxCalculator’s broad selection of cost basis accounting methods and global tax settings help ensure compliance while minimizing your tax liability.

Honorable Mention: CoinTracker

Not to be confused with CoinTracking, CoinTracker is a beginner-friendly crypto tax software that helps guide users through in-application warnings and tax report notifications. Although this platform is not advisable for complex transactions, the supported features are an excellent choice for basic use cases. From various cost basis accounting methods including FIFO, HIFO, and LIFO to tax-loss harvesting, CoinTracker is a strategic choice for users in need of simple transaction support for 5,000 or fewer transactions.

Noteworthy Alternative: Coinpanda

With NFT and DeFi tracking capabilities, support for over 800 exchanges and wallets, and detailed capital gains insight, Coinpanda is a noteworthy option within the crypto tax software space. This platform is centered on a three-step tax process with analysis options and support for several complex transaction types to help intermediate users get the most out of the platform. Coinpanda’s flexibility makes it a welcomed choice across borders, including over 65 countries.

Worth Consideration: ZenLedger

For a sleek and versatile crypto tax software option with support for over 400 exchanges, ZenLedger is worth considering. Coupled with a streamlined API and CSV file import process, this platform’s solution recommendations and transaction warnings help expedite the crypto tax process. For intermediate-level users in need of the capacity for a high transaction volume, ZenLedger is a welcomed option.

Common Errors to Avoid with Crypto Tax Software

Given the recent rise of crypto tax platforms like the options above, individuals and businesses are oftentimes drawn in by promises of speed and simplicity. At the same time, even top-rated platforms like CoinTracking depend on competent users to ensure accurate calculations and compliant reports. Let’s take a deep dive into some of the most common errors.

Historical Pricing Inaccuracies

One of the most common challenges with crypto tax software involves inaccurate cost basis calculations. In turn, overestimations and underestimations in taxable gains or losses can result. The root cause is oftentimes a discrepancy with the cryptocurrency’s historical price on the date of the purchase or sale. For example, third-party data providers may use different methods to calculate pricing data. As a result, these calculations can vary, leading to inconsistent data with the blockchain. Cross-checking this information is crucial to ensuring accurate crypto tax returns.

Unsupported Blockchain Protocols

Throughout the blockchain ecosystem, the issuance of new cryptocurrencies is a regular occurrence. As a result, crypto tax platforms face the ongoing challenge of capturing the full breadth of data within each wallet and exchange. For this reason, the cryptocurrency data captured by one platform can differ significantly from another. While many platforms feature automatic alerts for missing data, conducting a manual review to ensure accurate information is key.

Overstated Taxable Income

Even if both wallets are added to your crypto tax software, you may still find that internal transfers are recorded as taxable events. Here, you could wind up overpaying on your return through overstated taxable income. Swaps also have a tendency to appear either twice or for only one side of the swap, further decreasing accuracy.

Omitted Transaction Fees

During swaps and other transactions, fees are oftentimes necessary to facilitate the exchange. These can arise at either a fixed rate or as a percentage of the total transaction cost. After an incomplete data import, however, these fees can be missed. In some cases, your crypto tax software may not offer coverage for the fees of a specific exchange. Likewise, the software may simply lack an automated fee categorization capability. Reviewing and manually inputting missing data is an important step to account for these miscalculations.

Limited Complex Transactions

DeFi protocols, airdrops, staking, and other complex transactions are oftentimes unsupported on basic crypto tax platforms. While platforms like CoinTracking or CryptoTaxCalculator that are built for intermediate and advanced users generally include these capabilities, simplified DIY platforms may leave these transactions unaccounted for. As you’ll read in my recent article, choosing the right crypto tax software for your needs is an essential first step for accurate returns.

Regulatory Update Latency

The people behind your crypto tax software matter. Platforms with limited support networks are oftentimes delayed when it comes to regulatory updates. For example, regulations could outline new tax treatment for a specific cryptocurrency transaction type. If the crypto tax software in question is still using the old methodology, the misclassification could slide beneath the radar and lead to non-compliance. Staying up-to-date with regulations and choosing a platform with a robust support network can help mitigate these issues.

Opting for Professional Support

Although these are some of the most common errors facing crypto tax software today, the list above is a small sample of the possible obstacles and situations. As always, the best way to ensure accuracy, compliance, and optimized returns is through a crypto tax expert. I encourage you to visit my website for a full look at how my borderless crypto tax services can help.

Getting Started While Saving

For years, I have leveraged CoinTracking for my borderless crypto tax services. In turn, my recommendation is rooted in lived expertise with the platform. I encourage anyone serious about compliance and crypto tax savings to sign up today for an additional 10% off using my referral link. Ultimately, my recommendation is rooted in my long-standing belief that CoinTracking is the best crypto tax software available today.

What To Do If Your Accountant Isn’t Crypto Savvy

Posted on August 9, 2023August 31, 2023 by Ira Sogani

As crypto becomes more prevalent, individuals and businesses are facing a common dilemma during tax season: their current accountant doesn’t understand the intricacies of cryptocurrency taxation.

Even after working with your accountant for years, a knowledge gap surrounding crypto tax may lead you to look elsewhere. At the same time, you’ve built a strong relationship with your accountant, and you’re satisfied with the other aspects of their services. Is there a way to ensure accurate and compliant crypto tax returns without losing the continuity of your current accountant?

Instead of enduring the stress and uncertainty of switching accountants altogether, consider bridging the gap by hiring a dedicated crypto tax expert.

Traditional Accountants vs. Crypto Tax Accountants

Before exploring how a crypto tax accountant can work alongside your traditional accountant, let’s evaluate some of the key differences.

For example, consider how a traditional accountant would handle missing transaction data. Through familiar bank statements, receipts, financial reports, and analysis, the gapped data can be either located or estimated. With crypto, however, the process isn’t as straightforward. Here, a crypto tax expert would delve into the blockchain to reconstruct the data. The technical proficiency required to compliantly carry out blockchain tracing oftentimes goes beyond the scope of traditional accountants.

Additionally, most traditional accountants lack exposure to relatively new concepts such as cryptocurrency staking. While a crypto tax expert would understand how to classify, value, and report staking income in accordance with IRS tax codes, a traditional accountant is more likely to omit or misclassify these types of activities. As a result, costly fines and audits can follow suit.

In addition to their current expertise, crypto tax accountants have the added advantage of up-to-date regulatory insight through their in-depth community engagement. On the other hand, traditional accountants generally reserve their focus for regulatory changes such as ASC 606 or new GAAP accounting standards. Even with a basic understanding of crypto tax law, they lack the depth and upkeep of a crypto tax expert. Given the ever-evolving regulatory landscape surrounding crypto, the most current knowledge is essential for compliant tax reporting and relevant advice.

How Crypto Tax Experts Work Alongside Accountants

Crypto tax experts are accustomed to working hand-in-hand with traditional accountants, given the increasing demand for their specialized knowledge. In turn, the process is both seamless and accurate.

The crypto tax process includes classifying transactions such as airdrops and trading activity across your wallets and exchanges, calculating capital gains and losses, and completing tax forms such as Schedule D and Form 8949 and beyond. Once finished, these experts can provide your accountant with the reports they need to file an accurate tax return while offering specific guidance for any uncertainties.

Through the specialized knowledge of a crypto tax expert, your accountant can alleviate the risk of costly errors and omissions while navigating the nuances of your crypto activities with precision for an optimized tax outcome. Although the process involves two separate professionals, the coordination along the way can oftentimes have the same feel as a unified office.

Getting Started with a Full Crypto Tax Review

For certainty, you can count on “The Borderless Accountant”. My crypto tax review services are here to help. In turn, I offer the peace of mind that comes from reconciling past mistakes with corrective action recommendations to ensure historical compliance.

I encourage you to get in touch or explore my website for a full look at my basic and in-depth crypto tax review services. Thank you for reading.