Hitendra Patil, named one of the Most Influential People in Accounting, provides guidance for computing cryptocurrency tax.
1 min read
What will the IRS do if you, as the tax preparer, do not report your client’s cryptocurrency transactions correctly?
The good news is you don’t need to know how cryptocurrency technology works. But to figure out the tax implications, you need to be aware of what can people do with cryptocurrencies.
Before you get started, download our free guide to understanding blockchain here!
Superman movies amazed me in my childhood. I cannot forget the fictional substance kryptonite, which had a scary debilitating effect on my beloved Superman.
I first heard of “Bitcoin” way back in 2009 before I heard the term “cryptocurrency.” My mind unwittingly related it to “kryptonite.” I felt cryptocurrencies would debilitate the fiat currencies. Little did I imagine that cryptocurrencies could cause mass confusion about a) how to tax them and b) how tax preparers will make sure crypto tax is computed correctly.
In 2014, the IRS issued “virtual currency” guidance stating that virtual currency will be treated as property for US federal tax purposes and that the general rules for property transactions apply.
Some of the key issues touched upon by the IRS in its guidance were:
When the recent tax reform was unveiled, cryptocurrency investors and traders talked about whether Section 1031 applies to crypto-to-crypto exchanges—treating them as like-kind exchanges—to be able to defer capital gains taxes. Whether cryptocurrency exchanges (trades really) qualify to be like-kind exchanges or not is the “how to tax” issue that is still under development.
When you're computing crypto tax for your clients, the first thing to look for is the “what,” i.e. “what” did your client do with their cryptocurrencies. You need to know the questions to ask your clients.
Here are the 10 questions to ask for quick crypto tax review. It is important that you are aware of the possibilities, whether you have fully mastered current crypto tax provisions or not. The words in parentheses below give you an idea of what you might want to examine from the tax perspective.
I’ve lost track of how many Superman sequels there have been so far. But I believe that Superman is indeed alive as of now and may return anytime. Crypto-taxability sequels are yet to come, and I am sure they will be as intriguing as the wild ride that super-cryptocurrency Bitcoin has had so far. The best thing you can do, as a tax preparer, is keep yourself abreast with the crypto tax world.
Interested in learning about blockchain? Download Canopy’s blockchain ebook here.
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