Now that the tax season is gone, it’s never too late to start making arrangements for the next season. I know, I know… you just finished filing your taxes and don’t want to do that now. But, you need to think and plan ahead if you want to avoid the rush and complications you had to deal with this year; most especially if you had to report your cryptocurrency income.
The IRS has seen how big of cash cow cryptocurrency investing can be, and they don’t want to miss out on that opportunity. Last year, many people made a ton of money trading cryptos. With the IRS placing income from cryptocurrency trades and investments in the same category as personal income, it is important to prepare.
Tips For Preparing Your Crypto Taxes In 2019
But, seeing as most people are unable to prepare their tax reports themselves, most resort to hiring a “guy”, usually an accountant to handle their taxes. The problem with that is, some of them aren’t even aware of cryptocurrencies. So, out of negligence, they may end up filing those taxes but missing out on your cryptocurrency income.
Unfortunately, when the IRS comes for you, they won’t be picking up your accountant, they would be taking you to jail. So, you need to ensure that you choose the right accountant. To do that, you’ll need to ask them the right questions. The following should help get you started:
Do You Have Experience Filing Taxes Inclusive Of Crypto Profits?
While it seems like a pretty obvious question, the reality is that cryptocurrency is a pretty new investment vehicle. This means they may know little to nothing about it.
As a result, they may not be able to do a great job of filing your taxes properly. Remember the IRS doesn’t care about the accountant who filed your taxes. They care about you paying your taxes.
So, if your accountant doesn’t understand the nuances of cryptocurrency, get another one. You want to ensure that they're familiar with the terminology, regulations –if any, tax benefits, and so much more. You want someone who has experience with this sort of thing.
I understand that cryptos are new, but do you really want to be the guy whose tax filing they use in learning? Trust me, any mistakes and you’re on your own.
Do You Have Experience Trading Cryptos?
If yes, how did you report your income/profits from those trades? A personal narrative will help you ascertain if he/she truly know what they’re doing.
The ideal candidate would be an accountant who has had experience buying, selling, making a profit off of those trades, and filing their taxes with those included.
This way, you know they're at least familiar with the industry and will do a better job than an accountant who has no inkling of what to do with your crypto profits. To be fair though, this one can be a non-issue, seeing as many accountants are usually risk averse.
So, the odds of them trading cryptos will be somewhat low. Just have this at the back of your mind, and definitely not use it as a major criterion. Just think of it as an added plus.
How Will You Factor My Capital Gains Or Losses Into My Tax Filing?
While some exchanges provide you with a history of trades and the attendant reports for easier tax filing, others don’t. So, not only would you need your new accountant to make sense of the data you’re giving him, you’ll need one who has the ability to go through your trades and manually reconcile your capital gains and/or losses.
The truth is your intended accountant needs to understand what he’s looking at. Capital gains/losses are pretty commonplace in crypto trading and investing. More importantly, trade history and data can be pretty unorganized.
Most importantly, you would need to give him the history of your inflow and outflow if you have several wallets. Unfortunately, this can be a bit complex seeing as regular transfers such as moving your funds from an exchange to your wallets or bank can be recorded as a transaction.
The reality is there are so many moving parts to crypto tax filing. If he doesn’t know what to make of that information, you need to keep looking until you find one that does.
How Will You Handle My FACTA And FinCEN 114 Filings?
If he doesn’t understand the question, just don’t bother. You see, while the government is currently trying to get its head around crypto, much of the necessary laws, and policies are still unwritten.
This means you may have to resort to traditional finance laws, regulations or policies while filing your taxes. Adding a FACTA form is necessary if your annual trades have exceeded $50,000 in an international/foreign platform.
The FinCEN 114 form which is usually filed with the US Treasury department, is necessary when you have over $10,000 in a foreign entity –use the same analogy as above.
Tips For Preparing Your Crypto Taxes In 2019 Conclusion
There you go. Ask your candidates these questions, and pick the one who is most knowledgeable and experienced. Good luck.