It’s an inescapable truth, crypto is taxable and the taxman is waiting! While revenue raising is nothing new, the rules around crypto taxes are - and accountants around the world are playing catch up. So what can you do to ensure your accountant is up to scratch when it comes to cryptocurrency accounting? We’ve narrowed it down to 5 essential questions.
What to ask your crypto accountant before you hire
Before you hire your accountant, make sure you ask the following:
- Do you have existing crypto clients?
- Do you understand different crypto transactions?
- Have you filed an FBAR before?
- Do you use crypto tax software?
- Do you trade crypto?
Let's look at each in more depth.
Do you have existing crypto clients?
Sure, everyone has to start somewhere, but you don’t want to be the crypto guinea pig your accountant cuts their teeth on. So, the very first thing you need to know is, does your accountant deal with crypto tax already, and since when? Better yet, ask your accountant what percentage of their client base are crypto investors? The more complicated your investments are, the higher that percentage should be.
Do you understand different crypto transactions?
Any crypto accountant worth their salt will know that crypto can be taxed as either capital gains or as income. If your accountant or bookkeeper is not able to explain how crypto is taxed at these two basic levels, then move on. And if you’re dealing with mining, staking, DeFi interest and airdrops, double down on your accountant’s understanding of crypto taxes.
While both capital gains and income have their fair share of nuances, Income Tax or Capital Gains Tax may apply to many of the newer - and trickier - transactions and projects, like:
- Liquidity mining - depending on how rewards are paid out.
- Yield farming - depending on how rewards are paid out.
- Staking - depending on how rewards are paid out.
Have you filed an FBAR before?
Ever held more than $10,000 in one or more foreign bank accounts during a tax year? US investors are required to file an FBAR, and recent guidance from FinCEN shows that this regulation could soon apply to accounts on foreign crypto exchanges as well. If your accountant has experience with FBAR, they'll be better placed to handle your future crypto tax obligations, so ask the question.
As well as this, although it won't apply to the majority of investors, anyone who had fiat currency or specified foreign financial assets worth over $50,000 on the last day of the tax year or over $75,000 at any point during the tax year in a non-US exchange may need to file a FATCA. So if this applies to you, make sure your accountant has experience filing FATCAs as well.
Do you use crypto tax software?
Crypto tax is complicated for many reasons, the first being the sheer amount of data and admin required to generate accurate tax totals. It's advisable that your accountant uses crypto tax software to import all your crypto accounts, from both the exchanges you trade on, and the wallets you store your crypto in. Not only can tax software help ensure calculations are correct and spared human error, but the majority of accountants dealing with crypto love crypto tax software because it saves them (and their clients!) hours of manual admin - and billable hours for you.
By using Koinly, your accountant can easily - and accurately - generate a tax report that shows your capital gains, losses, income, and expenses for the tax year, saving you money and time.
Do you trade crypto?
On a fast-track to whale status? Trading at over 1,000 transactions per year? Involved with margin trades, futures and derivatives? If you're trading in the big leagues your accountant should be too.
Going after accountants with cryptocurrency experience might narrow the field, but it’s pretty important that your accountant or bookkeeper understand the space. These are the sorts of experts you’ll want especially if you’re trading at a high value, or involved with niche projects.