The world of finance is changing dramatically as a result of the recent ascendency of cryptocurrency. Despite turbulence in the crypto market is booming, more and more enterprises and individuals are investing in this new form of digital, decentralized currency and hoping to profit from trading with it.
Of course, all this presents new challenges and opportunities for accountants, whose job it is to keep track of these transactions, ensure that they are compliant, and navigate the complex taxation of crypto as well.
All of this can seem overwhelming to the uninitiated, which is why we’re going to clear up some of the tax implications of crypto for the accountancy industry. This article aims to offer readers guidance on compliance, reporting, and best practices for accountants to help their clients navigate the evolving regulatory landscape of digital currencies. Read on for more.
Challenges of Crypto for Accountants
One of the key challenges accountants face when dealing with cryptocurrency transactions is the lack of clear guidance from tax authorities.
For example, the Internal Revenue Service (IRS) in the United States has already released some guidelines on how to report cryptocurrency transactions. However, these guidelines are in a state of flux as the market evolves and are constantly subject to change. Thus, accountants dealing with crypto transactions are now expected to keep abreast of the latest regulatory updates as and when they occur, in order to avoid tax-related penalties or infractions.
Another issue is the aforementioned volatility of the crypto market, with prices of various currencies fluctuating widely in the short-term. For accountants, these fluctuations can cause significant challenges when it comes to impairment testing and valuation.
Lastly is the problem of security. The decentralized nature of crypto leaves it particularly vulnerable to data breaches, theft, and other forms of cybercrime. The additional security measures needed to ensure that crypto can be traded safely can be another hurdle for accountants to overcome, adding to the burden of their day-to-day workload.
Cryptocurrency and Accountancy: Best Practices
Firstly, accountants must stay up-to-date with the latest developments in crypto tax regulations, including how to classify different types of crypto transactions, such as buying, selling, or mining cryptocurrencies, and report them on tax returns.
Accountants should also strive to keep detailed records of all cryptocurrency transactions for recordkeeping purposes, including the date and time of each transaction, the amount of crypto exchanged, its value at the time of the transaction, and any additional fees.
Furthermore, accountants should educate their clients on the tax implications of cryptocurrency transactions, and how to accurately report them in their tax returns. For example, in the US the IRS treats cryptocurrencies as property for tax purposes — meaning that gains or losses from the crypto transactions are subject to capital gains tax.
Accountants can also help their clients navigate the evolving regulatory landscape of digital currencies by staying informed about new laws and regulations related to cryptocurrencies, as well as any new technology that can increase the level of security for their crypto transactions.
Stay Updated on Crypto through INAA
INAA’s mission is to help keeping accountants updated with the latest news from the financial and fintech world; including the subject of cryptocurrencies. Our courses are designed to provide accountants with ongoing training and development so they can stay aware of changes in crypto tax regulations, and advise their clients on how to conduct their transactions in a safe, secure, and compliant manner.
Boasting over 140 members across 50 countries, INAA connects accountants to a huge network of other like-minded professionals. So, if you’d like to learn more about what INAA can do for you, then visit our website and sign up here.