The Role of CPAs in Crypto Taxes: What You Need to Know


The IRS has noted that there are currently more people participating in the virtual currency marketplace than ever before — a development that can be partly linked to excitement and partly to the sum of money the administration distributed during the COVID-19 outbreak. The number of cryptocurrency traders in the United States reached a record high and is still rising as investors have more spendable income at their disposal.

Here’s what the crypto winter scenario looks like and how a CPA must prepare themselves according to the current market conditions. Additionally, learn about the questions you can ask them about how crypto is taxed in the changing crypto scenario.

Crypto Winter & CPAs

It is normal for dealers to profit from the ongoing changes by buying on the decline and selling on the advance. Unfortunately, because every transaction is viewed as a taxable event, discussing bitcoin taxes is difficult.

The cryptocurrency market has substantially declined since November 2021, going from $3 trillion to far less than $1 trillion, a 60 percent decline.

Consequently, the impulse is to put cryptocurrency assets (and blockchain) on the wayside as the market enters a new crypto winter, but doing so would be detrimental to the accounting industry and the investors looking to place money in this rapidly expanding asset class. 

Cause of Turbulence in the Crypto Market

Crypto winter is characterized by a decline in pricing that lasts for a while. You must maintain vigilance during this challenging period and be ready for sudden turbulence to erupt in the market. Experts predict that earlier in 2022, the foundations for the impending crypto winter were laid.

The impact of global politics, particularly the Russia-Ukraine crisis that shook up global banking, was already being felt by the cryptocurrency market.
Crypto chart crashing

The impact of global politics, particularly the Russia-Ukraine crisis that shook up global banking, was already being felt by the cryptocurrency market.

The United States, which is the biggest participant in cryptocurrency, has seen rising interest rates as a result of hyperinflation. Crypto winter had already started by the time TerraUSD and Luna failed and started a chain reaction in the cryptocurrency market.

Crypto Winter: The Role of CPAs

Certified Public Accountants (or CPAs in short) might be excused for continuing to concentrate on the consequences of this volatility even if the conversation about cryptos has advanced well beyond merely debating bitcoin price volatility. 

The market needs trusted experts who can assess, analyze, and report financial statements, and CPAs fill this crucial function. 
Person holding CPA card

Assigning far more attention to cryptocurrency could seem like a strange decision in light of the sharp decline in prices experienced by the whole crypto industry, the collapse of a number of well-known crypto banking systems, and the general increase in unfavorable attitude.

Nevertheless, despite the recent crypto winter, the use of cryptocurrencies is still increasing quickly and widely.

Given that there are a huge number of people using crypto assets and that many medium-term predictions anticipate a billion users overall, it is more likely than ever that clients will have queries about crypto. The market needs trusted experts who can assess, analyze, and report financial statements, and CPAs fill this crucial function. 

Plus, many CPAs play a significant part in how business owners, investors, and entrepreneurs spend cash now and look for new market prospects.

Issues to be Considered by CPAs

Simply put, CPAs need to be more informed about crypto patterns than ever before to help their internal clients as well as external customers. Let’s now analyze some of the issues that accounting professionals should be thinking about right now despite the continued volatility in cryptocurrency prices.

Simply put, CPAs need to be more informed about crypto patterns than ever before to help their internal clients as well as external customers.
Woman holding Bitcoin over her eyes

1. Adopting Crypto

Users will be searching for some knowledge and direction on how to appropriately incorporate these assets into operational processes as the breadth of cryptocurrency use extends and evolves.

Businesses may wish to begin taking cryptocurrency payments in hopes of drawing in new clients. This is usually advantageous, but they will have a few queries when making this shift.

  • What is the most effective strategy to report and share this information with creditors and investors?
  • Do insurance plans and considerations need to be revised once cryptocurrencies are used?
  • What financial effects does incorporating cryptocurrency into the company have?

2. What About Crypto Taxes?

Any discussion with your CPA will be incomplete without you asking how is crypto taxed, and inquiring if there are any regulatory changes. While this may seem like a simple issue, it may potentially get rather intricate when more sophisticated crypto asset applications are released. 

While certain court decisions emphasize the ambiguities around stakes and block incentives, your CPAs can aid you in better comprehending large variations of the cryptocurrency world.

For instance, CPAs should advise clients about tax and tax-related investing opportunities, particularly in the wake of the latest price declines that have captivated headlines about cryptocurrencies. These entail the wash sale rule not being applied due to the present IRS classification of cryptocurrency.

Additionally, a number of concerns that CPAs may help with include the tax implications of decentralized finance (DeFi) earnings and prices as well as the notion that the same NFT may be taxed differently depending on the context.

In simple terms, crypto tax planning is a challenging and rapidly expanding field with no signs of stopping.

3. Cybersecurity

It is impossible to exaggerate how vital strong cybersecurity is, and every accountancy expert is well acquainted with this.

The fact that CPAs frequently handle some of an organization’s most sensitive and valuable information only highlights how crucial it is to have this understanding. Even something as deceptively straightforward as allowing clients to pay with cryptocurrency presents numerous cybersecurity-related concerns.

All of these issues affect financial statements directly, but they also have an impact on CPAs’ present and prospective work.

  • Which vendor from the outside will be chosen to help the clients with this strategy?
  • In a field that is expanding so quickly, what steps are performed on and for the supplier and installation team?
  • Does the cryptocurrency payment tool work properly with the other components of the software platform?
  • Will the questioned company decide to take a middle ground between holding onto the cryptocurrency received and quickly converting it to fiat?

FAQs

Top crypto FAQ answered.

1. Can crypto really be taxed?

Yes, in the USA cryptocurrency gains are subject to tax liabilities by the Internal Revenue Services. It states that crypto assets will be considered as property and not currency. Additionally, depending on the duration of your crypto holding you will be subjected to long-term or short-term capital gains taxes.

2. What happens if you don’t report crypto?

If you don’t record your taxable crypto transactions and are subject to an IRS audit, you might be charged with a crime or subject to fines and penalties.

3. Can I write off crypto losses?

Cryptocurrency is subjected to taxes when you incur gains or earn income. You typically don’t have to pay taxes on cryptocurrencies until you sell them, as long as you are holding them as an asset and it isn’t producing any revenue. By avoiding making any transactions within a specific tax year, you can completely avoid paying taxes.

4. What is crypto winter?

Crypto winter is characterized by a decline in pricing that lasts for a while. You must maintain vigilance during this challenging period and be ready for sudden turbulence to erupt in the market. Experts predict that earlier in 2022, the foundations for the impending crypto winter were laid.

5. What should I ask my account about crypto taxes?

Any discussion with your CPA will be incomplete without you asking how crypto is taxed, and inquiring if there are any regulatory changes. CPAs should advise clients about tax and tax-related investing opportunities, particularly in the wake of the latest price declines that have captivated headlines about cryptocurrencies. 

6. What has caused the recent declines in the crypto market?

The impact of global politics, particularly the Russia-Ukraine crisis that shook up global banking, was already being felt by the cryptocurrency market. The United States, which is the biggest participant in cryptocurrency, has seen rising interest rates as a result of hyperinflation. 

7. Is cybersecurity important?

Yes, it is! It is nearly impossible to exaggerate how vital strong cybersecurity is, and every accountancy expert is well acquainted with this.

The fact that CPAs frequently handle some of an organization’s most sensitive and valuable information only highlights how crucial it is to have this understanding. Even something as deceptively straightforward as allowing clients to pay with cryptocurrency presents numerous cybersecurity-related concerns.

Final Thoughts

Essentially every part of the business is influenced by technology, and the use of cryptocurrencies only complicates an already complex environment. But challenging circumstances can also present opportunities for dedicated and effective practitioners.

All types of crypto assets are likely to grow and flourish in the financial industry, and CPAs are ideally situated to take advantage of these new opportunities for their customers and themselves.

Numerous people have questions about cryptocurrencies, which opens up an exciting opportunity for the industry to offer knowledge, improve data transparency, and assist customers in making wiser business decisions.

AlexWGomezz

Alex is passionate about informing others on Web3 tech. He previously worked for Gary Vee at ONE37pm as his Web3 writer and has written for other media outlets including Voice. Alex is an avid researcher and investor in the Web3 space and strives to help others while keeping a curious mind.

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