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!