One of the difficulties for any new industry is there is little to no research. Blockchain and cryptocurrencies have introduced an entirely new asset class, and as a result, an entirely new industry known henceforth as crypto accounting.
When Blox set out to establish one of the first reports for crypto accounting, we made every action with a few guiding ground rules. Remain a bi-partisan observer that only collects and aggregates the facts and findings; Speak only with bonafide industry experts that are at the top of their field for crypto accounting, law and tax; Analyze the results of our findings to discover any new and exciting trends, insights, challenges and opportunities.
It is with these rules that we were able to combine one of the first insightful reports for the next generation of crypto accounting and tax preparation. We reached out to over 20 of the leading, US-based, crypto accountants and firms and after analyzing the results – the final picture came into focus.
What we uncovered at the end of the report was clear, crypto accounting CPAs and the industry at-large require three things to overcome the most pressing challenges:
How does the industry plan on solving these challenges?
We need to educate investors, professionals and businesses with enlightened best-practices. Professionals require smarter technology and increased automation for crypto accountants or tax professionals. Accountants and tax professionals require full disclosure of their clients complete asset and transaction history for taxes and proper accounting
In order to solve the challenges above, crypto experts are resorting to finding innovative means of calculating cost basis, reconciling accounts, accounting for crypto assets and more. Blox is already leading the charge with our all-in-one crypto asset management platform for the future of the industry.
Institutional Framework & Best Practices
The IRS has already issued a letter to 10,000 known crypto holders, alerting and reminding them about the correct tax forms and procedures they need to prepare for the upcoming tax season. However, crypto accounting professionals remain in the dark over how to properly account for cryptocurrencies without legal framework formed by governments or regulatory bodies and tax authorities.
“Lack of accounting guidance makes it difficult to account for crypto currencies. Valuation considerations and lack of consistency in applying valuation principles especially for thinly traded tokens.” – Jagruti Solanki of Aprio Advisors
Unfortunately for CPAs and these industry professionals, they are not governed by a legal framework to understand how to classify and account for clients digital assets. This gap in knowledge leaves a large question mark over the way businesses and professionals are supposed to manage cryptocurrency taxes and accounting.
Smarter Technology & Automation
The Crypto Accounting report found that smarter technology and automation are heavily desired by today’s accounting and tax professionals. In an industry where thousands and millions of transactions, accounts, exchanges and currencies are constantly flowing through the ecosystem, tracking and management become a seemingly impossible task. Not only is the ability to reconcile accounts with accuracy imperative, but the pain staking manual data entry is a major hurdle for CPAs or businesses. Especially small to medium sized businesses or investors who simply don’t have access to the resources of a large global corporation or organization.
“There are very few crypto mamnagement software capable of producing a balance sheet and income statement for crypto related activities. We believe that as the industry continues to grow, crypto software products will get better and better, and the challenges we are facing will be less and less.” – Sharon Yip of Crypto Tax Advisors
Professionals are seeking increased automation. For example, when tracking hundreds of your business’s assets, and need to reconcile the total sum of all your Ethereum earnings, repeating the calculation process is long and tedious. With automation, the calculation, reconciliation and verification process is automatic, with little need for human intervention.
Additionally, for bookkeepers, or smaller accounting operations, saving on cost, time and resources is a must. Leveraging technology, professionals already know that it will boost their productivity while still providing the best possible service to their customers. As the demand for crypto accounting grows, automation and technology have a clear path to providing the most valuable financial tools for today’s modern crypto business.
Complete Asset & Transaction Disclosure
CPAs and taxation professionals place strict emphasis on the need for clients to fully disclose a complete asset and transaction history of all crypto portfolios. Not only does crypto trigger many taxable events, but it is also illegal to refrain from disclosing all assets, as they are considered property and therefore, unequivocally taxable in the eyes of the IRS in the United State.
However, CPAs have noticed clients refrain from doing so which leaves large holes in the data and can impact the final profit & loss results and other important financial reports. Additionally, failing to disclose assets after filing taxes is a criminal offence. Moreover, sometimes having a complete history of the clients data can be in the client’s favor when tax season arrives. But, if a tax or accounting professionals is missing information, the client faces the ramifications.
“Maintaining completeness of record and hiring an educated team who understands the technology in your finance and accounting department. Due to the large amount of transactions with some of our clients and the ability to easily move assets presents challenge to maintain complete and accurate information.” – Steven Baum of Friedman LLP
There is no longer any excuse for crypto investors to play ignorant. The cryptocurrency community is one of the most vocal and the concerns have been gently addressed by government and tax authorities. The report from today’s leading CPAs clearly indicates that the best approach to cryptocurrencies is always be prudent, proactive and diligent.
The report takes a lot of the findings and highlights the key discoveries for the first time in the world of crypto accounting. As Blox and the industry learns more, takes on more experiences and learns the emerging trends, the next generation of crypto accounting will be far more efficient, intelligent and automatic then ever before. This is not just good for Blox, but more importantly, the industry at large.
Interested in learning more? See the free report today!
Media Coverage for the Blox Crypto Insights Report: