Crypto taxes are presenting a new and often complicated challenge for accountants everywhere.
Just imagine combing through an endless CSV file containing a client’s buys, sells, staking rewards, mining rewards, airdrops, hard forks, and more. From there, calculating the cost basis and resulting tax liabilities for all of these transactions, which could number in the hundreds or even thousands, can seem like a near-impossible task.
Until recently, there were few feasible ways for accountants and their clients to streamline this process.
Fortunately, with Cointelli, that’s no longer the case.
The benefits of using Cointelli
Cointelli allows accountants to provide more accurate calculations for their clients while saving time and money. It is also compatible with existing tax software like Drake, ATX, CCH, and many more.
In addition to being easy for both accountants and clients to use, Cointelli also allows inclusion of a higher number of transactions without deviating from its fixed price.
Insights from a CPA
For more, we sat down with a CPA who has experience dealing with crypto taxes to get their thoughts on the matter:
Q: Have you had clients come to you with questions about crypto tax?
Yes, we have received several crypto tax-related inquiries from our clients. Some were basic questions such as whether they had to pay income tax on a gain, but inquiries are increasingly becoming more technical. Some of these have included questions related to being awarded crypto options by an employer, cryptocurrency gifts received from family members, and crypto received while playing games.
We are also noticing that cryptocurrencies are being used for more than trading purposes these days. It’s becoming a new way to pay for services and transfer wealth. The transactions are often more sophisticated than just buying or selling, and have involved margin trading, leveraged trading, and any number of other things.
Q: Have you noticed a general trend of more clients seeking out crypto tax solutions?
With the public becoming increasingly aware that various crypto-related events could trigger immediate tax consequences, and the IRS interested in looking into those transactions, most of our clients have said they intend to report their taxable crypto transactions.
This is different from how it was three or four years back, when most people believed it was okay not to report non-traditional, non-cash transactions simply based on their belief that there was little risk of these transactions ever being detected.
Q: We’ve been hearing that, currently, calculating crypto taxes is very complicated. What exactly makes calculating them so complex?
The complication comes from the volume of data that clients and their CPAs need to deal with to identify reportable transactions, to correctly compute gains and losses, and to organize such reportable transactions in the format that the IRS requires.
Both clients and practitioners have a limited amount of time to calculate everything correctly and get it into the right format. Analyzing such massive amounts of data manually is not economically feasible, and in many cases is virtually impossible.
Not to mention the fact that crypto transactions are massive in their frequency compared to, let’s say, property sales. It’s also harder to track the cost basis – assuming you can even figure out what the cost basis should be.
Q: What are the biggest questions and concerns you have about doing taxes on digital assets like crypto?
I think I speak for most CPAs when I say that we cannot manually go through the enormous quantities of crypto tax data from clients to capture what to report to the IRS during the busy tax season.
It can also be hard to get 100% assurance with what we do – to know whether or not the work we have done will result in complete regulatory compliance.
This is not about whether the practitioner is well-versed in the details of the regulations, but about the fact that human capacity to deal with these things is obviously limited.
Q: Do you see a need for crypto tax software like Cointelli right now?
Yes, I do. Currently, many virtual currency exchanges do not provide a tax-tailored data set or tax reports that are 100% accurate.
Transfers between international exchanges are also common. So, when we deal with tax reporting for clients who are heavy traders or who trade internationally, it’s not about just one exchange but often dealing with multiple domestic and foreign exchanges.
Programs that provide a consolidated view and that can calculate foreign trading data are therefore very helpful to traders, CPAs, and even to the IRS, when it comes to accurately identifying how much tax is owed on crypto transactions.
Q: Where do you see the future of digital assets going? How important will Cointelli’s crypto tax services be to the future of the accounting industry?
Many people did not know much about digital assets until recently, and could not have imagined even a few years ago that we would now be living in a digital economy. I definitely believe that these innovations will merge with our day-to-day lives and bring new and unpredictable changes at a rapid pace.
As accountants are rule-bound by nature, and because regulations tend to respond slowly to the changes brought about by these types of megatrends, there will always be a gap between what we have to do to report to the IRS, and the information we have regarding compliance.
We need technology to fill this gap. And I believe that’s where tech-savvy tax professionals like those at Cointelli need to provide the public with smart solutions to help them adhere to the current laws and regulations.
Cointelli to the rescue
Crypto tax software like Cointelli solves many of the problems that accountants currently face when confronted with crypto taxes.
Because the software was created by tax accountants who are familiar with the crypto sphere, Cointelli factors in all of the most important variables and ensures that accurate reporting is made easy.
To give Cointelli’s service for tax professionals a try today, simply click on the “For Accountants” option on Cointelli’s homepage from March of 2022.