What was your journey into cryptocurrency like? What initially caught your attention and why?
I actually kind of stumbled into it by accident. I had some clients who were getting involved in crypto back in 2017 during the bull run when every coin was seemingly skyrocketing overnight. I observed the market from afar without participating, but started to become interested in how everything was taxed. Once I realized that there was a huge gap in the crypto tax preparation space, I started educating myself on it and things kind of took off from there.
When did your firm begin offering crypto accounting as a service? What specific services do you offer to crypto clients?
We started offering crypto tax preparation services in 2017. We work with miners, traders and investors to help calculate and report their cryptocurrency gains and losses, as well as develop tax strategies around crypto. In addition to working with crypto traders and miners, we also work with startups that are exploring various use cases of blockchain technology.
What are the top three mistakes you see crypto clients make when it comes to accounting?
1. Thinking they don’t have to file.
2. Not understanding that using cryptocurrency to purchase goods and services is a taxable transaction.
3. Not being organized with their wallet or exchange data
What are the top three challenges when it comes to accounting for crypto?
1. We still don’t have the regulatory clarity that we’d like to have from the IRS on certain areas of crypto taxation. There have been multiple requests for clarifying guidance, but we’re still waiting for some details to be ironed out.
2. The way the IRS taxes cryptocurrency makes widespread adoption of certain cryptocurrencies as a medium of value exchange unrealistic, especially when we start talking about things like micro payments. The number one barrier to widespread adoption of crypto as a digital currency is the tax compliance nightmare that comes with transacting in crypto. It is expensive and time-consuming to report everything properly.
3. There is no simple way to aggregate and standardize cryptocurrency activity across multiple exchanges and wallets. It is especially difficult to produce reliable gain/loss reports for tax reporting when multiple exchanges, wallets and coins are present. The fact that some exchanges shut down and deny users access to historical reports makes reporting very difficult. There are some options out there that can help with this, but it is not something the average person can figure out on their own.
What's the future of crypto accounting?
The future will largely be defined by the taxation of cryptocurrency. Imagine having to report a taxable transaction every time you use the US dollar to purchase something. Most people purchase several goods or services a day, which would be thousands of reportable transactions each year, on top of your other tax reporting obligations. This simply isn’t feasible for the average cryptocurrency user but that’s how the tax code tells us to treat the use of crypto to purchase goods or services. If we continue down that path, I just don’t see widespread adoption of cryptocurrency as a way to replace physical fiat currencies.
However, I do think we have enough smart people who can come up with a sensible solution and allow us to continue to innovate and grow. Crypto and blockchain technology simply offer too much promising upside in order for us to stifle it with unrealistic tax policy, but it will be interesting to see how it plays out over the next couple of years.