How to navigate cryptocurrency tax implications amidst the CPA shortage

Cryptocurrency is a hot topic all over the world, especially with Bitcoin prices (BTC), Ethereal (ETH) and other cryptocurrencies hitting higher thresholds and resulting in another banner year for investors. While earnings look good on paper, one factor is often left to consider, namely crypto taxes.

It is not uncommon for traders to take advantage of the constant fluctuations, buy the dip, sell the uptrend, and repeat it frequently. Unfortunately, every transaction is considered a taxable event, which makes the discussion of crypto taxes daunting.

The looming tax crackdown on cryptocurrencies only fuels the need to start the conversation. This crackdown is far from recent, making 2021 headlines from an IRS chief stating the country was losing trillions of dollars in unpaid taxes each year, with a significant portion being attributed to the cryptocurrency market. For this reason, there are currently several subpoenas against Coinbase, Kraken, and Poloniex in the US, forcing these exchanges to share the information with the IRS.

Since then, events like this have fueled more recent announcements of the IRS seizing billions of dollars in cryptocurrency that may be linked to tax fraud. While some of these actions to evade paying taxes seem extreme, especially when compared to the miscalculations themselves, it is worth noting that it is always the intentional tax evaders who can be affected by the imposition of crackdowns.

The IRS and crypto investors

The IRS has acknowledged that more investors are now participating in the digital currency market than ever before, a move that is partly exaggerated and in many parts attributed to the amount of money the government handed out during the COVID-19 pandemic. With more discretionary income in the hands of investors, the number of cryptocurrency traders in the US has reached an all-time high and continues to rise. Currently, roughly 55% of US investors are thought to hold Bitcoin, according to Grayscale inversions.

Recognizing this, the 2021 version of IRS Form 1040 it now asks recipients if, at any point in the year, they have received, sold, traded, or disposed of another financial interest through the virtual currency. Users then need to check the "Yes" or "No" box in response. The IRS further demonstrates its repression by placing this question on the form, directly below the taxpayer's name and address, a place that cannot be missed. The language has also been clarified to specify that only taxable events, including receipt of cryptocurrency as payment, airdrops, trading of different cryptocurrencies, sale of assets, gains from mining and participation, would be classified as "yes" in the updated form.

The Impacts of the Great Renunciation

After checking yes comes the most challenging step of crypto tax management, calculating the balance due. The IRS has made it known that cryptocurrencies/virtual currencies are considered property. Therefore, users must recognize and report any taxable gain or loss, and failure to do so will result in possible audit, interest payments, and rare penalties in extreme circumstances. As a result, many have turned to a professional crypto accountant for guidance.

In a traditional year before the pandemic, 15% of the staff has left one of the big four accounting firms, including Ernst & Young (EY), Deloitte, KPMG, and PricewaterhouseCoopers (PwC). Although there is no certainty that these statistics will remain the same this year, many companies agree that turnover rates will be higher than in previous years.

This year, after another year in the pandemic, has resulted in the profession at large being overworked and underpaid. As a result of the ongoing economic trend called the Great Resignation, an estimated 40% of accountants have left the CPA industry, leading to an overwhelming shortage of professionals. Traditionally, as the laws of supply and demand dictate, a decrease in supply leads to higher prices and, therefore, less chance that an investor will get the help he needs with his taxes.

Of course, even those who have the funds to hire a CPA may have a hard time finding one with the crypto tax experience to help.

Manage your cryptocurrency taxes

With fewer resources available, the issue of paying cryptocurrency taxes does not necessarily mean that users must navigate the complex tax landscape alone. Instead, the launch of new crypto tax software has streamlined the process for users to organize their crypto data and calculate their tax liability.

One of these offers is Pareoa cryptocurrency tax software with over 400 integrations, including Binance, BitMex, Kraken, and Tron, allowing users to access data in one consolidated location, automatically calculate a cryptocurrency trader's profits and losses, and classify transactions as financials decentralized (DeFi) stakingmargin trading and mining.

As one member of their team describes it, “Accointing is a beautifully designed, user-friendly platform built to help users handle crypto taxes on their own, without the need for a CPA to process the data. Users can submit their annual income and taxable earnings to the IRS by giving the output provided by the Accounting crypto tax calculator to a CPA, or through the dedicated TurboTax output.”

The result is that in a matter of five clicks, users can generate a personalized cryptocurrency tax report for their country of location. Investors can also use the "holding period tool" to optimize transactions by recognizing which tokens have been held for a year or more.

With offerings like Accointing, users can navigate the daunting tax landscape of the crypto world and avoid the battle over a shrinking accounting force.