How a Crypto CPA Firm Simplifies Crypto Tax Reporting for Businesses

The world of cryptocurrency is rapidly evolving. Tax planning is no longer something that you can handle on your own as an investor for many reasons with the core reason being that crypto assets are highly volatile, requiring unique tax treatment. This is where a crypto cpa firm steps in, helping your business streamline tax reporting while staying compliant with ever-changing tax laws. Let us understand how a crypto CPA firm can simplify the crypto tax reporting process for your business.

1. Understanding Crypto Tax Reporting Requirements

Crypto taxes are much more intricate than traditional taxes because the IRS classifies cryptocurrencies as property. This means that every transaction involving crypto is a taxable event, similar to stocks.

However, unlike stocks, crypto expands into areas such as mining, staking, airdrops, and even purchasing goods and services. Each of these events has different tax implications.

When you hire crypto accounting services from a crypto CPA firm, they ensure that all of these crypto events are reported in tax files accurately. For instance, if you sell crypto at a gain, it triggers capital gains tax. However, receiving crypto from mining or staking is treated as ordinary income.

Since the IRS focuses on increasing transparency in cryptocurrency transactions, you have to make sure that detailed records of each taxable event are available.

2. The Importance of Accurate Record Keeping

Keeping track of each cryptocurrency transaction that your business makes is a tedious task for your accounting team. Especially with the volatile nature of crypto transactions, you need specialized crypto tax professionals to analyze whether your business is on the right track.

As per the IRS, businesses have to keep a record of the date of the transaction, the market value of the crypto at the time of the transaction, the purpose of the transaction, as well as gains or losses realized from the transaction.

A crypto CPA firm helps businesses maintain these records by integrating the right technology to automate the tracking of transactions. This way, room for error is kept at a minimum level.

3. Common Crypto Mistakes Made by Business Owners

One of the biggest mistakes that businesses make when trading crypto is that they believe cryptocurrency to be a loophole in tax laws. Do not forget that ignoring or underreporting crypto transactions can have serious consequences.

The IRS audits businesses and individuals suspected of underreporting crypto income. In 2020, Forbes noted that the IRS sent over 10,000 letters to cryptocurrency holders reminding them of their tax obligations.

By working with a crypto CPA firm with certified public accountants who are well read on crypto tax law, you can avoid making common mistakes with filing taxes. Although the mistakes are simple and common such as incorrectly categorizing income or failing to report staking rewards, the penalties that come with making such mistakes are not that simple.

4. Crypto-Specific Strategies Used by Crypto CPA Firms

A crypto CPA firm optimizes tax reporting to reduce liabilities. One of the main strategies crypto accounting firms apply in tax-loss harvesting. Another important step is to select the most suitable accounting method.

Tax-Loss Harvesting

This is when businesses sell underperforming crypto assets at a loss in order to offset gains from other investments. This way, your business can reduce its overall taxable income. What crypto CPA firms do in this scenario is, monitor how your transactions have performed over time and identify the right assets to sell for maximized tax savings.

Accounting Methods

As a business engaging in crypto activity, you will have to decide between using FIFO and LIFO accounting methods to report crypto transactions. Usually, the crypto CPA firm that you have partnered with provides advice on which method to use to minimize taxes.

First In, First Out (FIFO) is an accounting method which assumes that the first crypto assets acquired are also the first to be sold or traded. This leads to higher taxable gains during periods of rising prices as older and lower-cost assets are sold first.

In the case of the accounting method, Last In, First Out (LIFO), the most recently acquired assets are treated as the assets to be sold first. This results in lower taxable gains in a rising market when higher-cost assets are sold first.

This decision on which accounting method to apply is made by your crypto CPA firm after analyzing market trends against the volume of crypto transactions.

5. No Stress, Only Crypto

One of the biggest benefits of hiring a crypto CPA firm is the peace of mind that comes with it. These crypto accounting firms have plenty of resources and an experienced panel of crypto tax professionals who ensure that your business complies with the latest crypto tax laws.

If your business engages in a large volume of crypto activity, a crypto CPA firm is essential to respond to IRS inquiries in the case of an audit. They will do all the needful with modern tools and analysis methods to ensure that your business is flourishing in the crypto world.

Whether you are just getting started with crypto investments or are a long-time trader, we are here to help you with your crypto concerns. As a well-reputed crypto CPA firm, we can ensure that your business succeeds not just in crypto finances but also in traditional finances.

Schedule a free consultation today to set your crypto journey on the right path!