Introduction
New York City has emerged as a hotbed for cryptocurrency investing and blockchain innovation. As more NYC residents dabble in crypto trading or get paid in digital assets, properly accounting for cryptocurrency taxes and staying compliant becomes crucial. However, the complex nature of crypto taxes requires working with an accountant well-versed in this niche area.
This comprehensive guide will equip you with the key considerations when selecting a cryptocurrency-savvy accountant in New York City that can optimize your tax liability.
Understanding Cryptocurrency Tax and Regulations
Before searching for a crypto-specialized accountant, you need a baseline understanding of how cryptocurrencies are treated for tax purposes:
Tax Implications of Cryptocurrency Investments
The IRS treats virtual currencies like Bitcoin as property rather than currencies. This means:
- Trading crypto for fiat money (USD) triggers a capital gain or loss calculation much like stocks.
- Using crypto to buy goods and services qualifies as selling that crypto for fiat and triggers taxes.
- Receiving crypto as income needs to be reported and is taxed.
- Crypto earned from mining or staking is also considered taxable income.
Recent IRS Guidance and Regulations
The IRS first issued guidance on crypto taxes in 2014, but has continued updating its documentation around acceptable methods for calculating gains/losses, proper reporting procedures, audits, and more.
Some of the key recent IRS notes include:
- Question additions related to crypto ownership on Form 1040
- Reduction of crypto reporting threshold from $20,000 to $10,000
- Strict warning to taxpayers about improper crypto tax reporting
New York State Tax Laws Pertaining to Crypto
In addition to federal cryptocurrency tax implications, New York State has its own guidance around the treatment of virtual currencies:
- New York follows IRS policy that crypto is treated as property rather than currency
- Cryptocurrency purchases by businesses may qualify for sales tax exemptions
- New York has complex tax residency rules that may apply to crypto investors
- Short-term crypto trades may be subject to higher ordinary income tax rates
Clearly, cryptocurrency taxes can get extremely complicated very quickly at both the federal and state levels.
Why Proper Crypto Accounting Is Essential
With the IRS and New York tax authorities strongly warning crypto users about compliance adherence, underreporting or failing to report cryptocurrency taxes can spell serious trouble. Any tax notices can incur:
- Tax owed plus interest and mandatory late fees
- Penalties reaching upwards of 25% for substantial underpayment
- Increased chance of audit in subsequent years
For residents of high-tax states like New York City, the cascading effects of underpaid crypto taxes makes proper accounting essential.
Required Expertise for a Crypto Accountant
With crypto posing many new challenges compared to traditional assets when it comes to taxes, special expertise outside of conventional accounting skills is a must for any cryptocurrency accountant.
Some of the required qualifications include:
- Blockchain Analysis: To accurately calculate capital gains, losses, incoming payments, spent payments, and other details needed for filing taxes on cryptocurrency requires analyzing blockchain transactions. This is a wholly unique skill most accountants do not possess.
- Cryptocurrency Tax Law Familiarity: As outlined earlier, virtual currencies face evolving guidelines and regulations around taxes. Beyond general tax law knowledge, CPAs handling crypto must stay updated on the latest IRS Notices that often alter reporting requirements.
- Capital Gains/Loss Calculation: Since crypto trades essentially get taxed like sales of other capital assets, math-heavy capital gains and loss reports need to be prepared after analyzing the blockchain activity. This requires crypto CPAs to adapt their existing capital gains skills specifically for cryptocurrencies.
- Tax Minimization Strategies: Well-versed crypto accountants leverage various legal means to minimize tax exposure from cryptocurrency investments through strategic loss harvesting, specific identification, optimal cost basis method selection, and taking advantage of exemptions available to certain crypto transactions. An expansive knowledge of these kinds of tax minimization tactics is a must.
The multifaceted experience required for competent cryptocurrency tax preparation makes finding specialists paramount. Having the right expertise drastically reduces the risk of mistakes and saves considerably on taxes owed.
Questions to Ask When Selecting a Crypto Accountant
Once you understand the complex reporting responsibilities around crypto taxes, vetting candidates by asking the right questions becomes crucial for finding an accountant equipped to handle this novel asset class properly.
Some of the top considerations to address include:
- Do you have experience with cryptocurrency taxes specifically? It is inadequate to merely have general capital gains tax preparation skills. Ask if they have directly handled cryptocurrency returns previously and for how long. They should readily display deep familiarity answering basic crypto questions if they advertise such services.
- How many crypto clients have you helped? Sheer experience counts with novel areas like crypto taxes. Try gauging the size of their crypto tax practice by the number of cryptocurrency users they have served. More clients demonstrates greater exposure across various situations compared to minimal volume.
- Which accounting methods do you use for crypto? Get an understanding of whether they rely on capable cryptocurrency tax software for tracking basis, gains/losses, as well as succeeding tax years with carryovers. Manual spreadsheets present more risk of errors that underreporting crypto taxes may flag for IRS review.
- How do you handle and secure my transaction data? Data security should be addressed given you must supply sensitive transaction records from cryptocurrency exchanges. Certifications like ISO 27001 or documented internal security policies add reassurance.
Use these starter questions as a litmus test to assess competency, but consider investigating specifics pertinent to your cryptocurrency activity. Ultimately, you want confidence that the accountant grasps nuances like staking rewards, NFT sales, DeFi transactions, multi-year data, record keeping obligations, and amendable tax returns if needed.
Top Cryptocurrency Accounting Firms in NYC
Combining crypto tax technical skills with accounting rigor and CPA credentials narrows down the playing field substantially in a city as large as New York.
Below are leading certified public accounting firms in NYC with notable cryptocurrency accounting specialization:
Anderson & Thompson, CPA
- Full service CPA firm in Midtown NYC with dedicated crypto tax practice
- Use leading crypto tax software like CryptoTrader.Tax and TokenTax
- Mix of tax attorneys and CPAs contributes well-rounded crypto expertise
- Representative clients include Coinbase, Kraken, Gemini, and FTX exchange users
Barrachina Tax Advisors, CPA
- Boutique crypto-focused accounting firm based in Chelsea, NYC
- Option for taxpayers to connect their existing exchange accounts for seamless tracking
- Also advise around crypto mining operations, NFTs, DeFi, and onboarding payments in crypto
- Flat fee billing models starting at $750
Berkowsky Stris & Company LLP
- Established accounting firm managing crypto taxes since 2017
- In-house developed proprietary process for reconciling crypto transaction data
- Specialists in both individual and corporate/partnership level crypto tax reporting
- Other blockchain services like crypto audits and litigation support
Citrin Cooperman & Company, LLP
- Major Manhattan based accounting firm with dedicated cryptocurrency tax team
- Represent both high net worth individuals and crypto companies/startups
- Utilize leading tax compliance software solutions
- Also handle multi-state tax considerations and Amended Return preparation
This list of top-tier CPA firms provides a starting point, but networking locally among cryptocurrency enthusiast groups like New York Bitcoin Developers can uncover specialized individual CPAs or smaller partnerships ideal for your specific crypto situation.
Final Considerations for Finding the Right Fit
Vetting credentials and qualifications constitutes just the start of finding the best match as your cryptocurrency accountant and advisor for optimizing taxes. Additional factors also contribute to getting the right fit:
Final Tips for Selecting Your Crypto Accountant:
- Personality Match & Communication: Since this is a long-term tax planning relationship, ensure your working styles mesh well. And clear communication channels matter when crypto tax software links accounts or amendments become necessary.
- Years of Crypto Experience: This emerging specialty means hands-on time with past years of crypto returns counts more than overall accounting tenure. The longer helping crypto clients, the deeper exposure to niche situations.
- Crypto CPA Designation: Specialist designations like the Certified Cryptocurrency Professional accountant (CCPA) demonstrate extensive tested skills in blockchain transactions, data reconciliation, reporting, audits and regulations.
- Cost Structure & Billing Process: Terms can vary substantially between by-the-hour, flat fees per tax year, or retainer structures. Understand complete billing details upfront.
Make the investment upfront to fully vet several qualified crypto accountants matching your needs—an hour of vetting can save thousands down the road. Avoid letting tax year pressure derail finding the ideal cryptocurrency accounting fit for your holdings situated in high-tax New York City.
Conclusion
Cryptocurrency investors based in NYC now face mounting tax obligations paired with complex reporting requirements that make working with a crypto-savvy accountant
