Advantages to Engaging a Crypto Accountant

The popularity of cryptocurrencies has exploded and they are quickly becoming one of the most popular asset classes. From tracking cryptocurrencies to paying taxes on them, there are many areas in which a crypto accountant’s expertise can help you stay ahead of the curve.

As we noted, there are many advantages to engaging a crypto accountant. The three biggest advantages include proper tracking, using the most advantageous tax strategies, and accurate and compliant tax liability calculations.

Why Detailed Tracking Matters with Cryptocurrency

For new cryptocurrency investors, one of the most overlooked aspects is detailed tracking. The lack of detailed tracking can cause a higher than necessary tax liability calculation as could understate your cost basis amounts. Further, you may not be able to take advantage of certain cost basis calculation methods.

Each of these tax lot ID methods will create a different tax liability. In order to use the most optimal cost basis method when calculating your cryptocurrency tax liability, you’ll need to have transaction-level details. There are many software options in the marketplace that can assist with this detailed tracking. Engaging with a crypto accountant prior to selecting and implementing a tracking software provides major benefits. Not only can an accountant help in the selection process, but once selected, they can ensure all of your transaction data is properly brought into the software.

Using a Crypto Accountant to Deploy the Most Advantageous Tax Strategies

As we noted above, when paying taxes on cryptocurrency, there are a few tax lot ID methods you can elect to use. Assuming you elected to use a software to track your cryptocurrency activity at the transaction level, a savvy crypto accountant will have the ability to run multiple tax lot ID scenarios and ensure the most optimal method is selected.

A few examples of accepted methods include:

FIFO (First-In-First-Out)
LIFO (Last-In-First-Out)
HIFO (Highest-In-First-Out)

In addition to selecting the optimal tax lot ID method, crypto accountants can also assist in deploying tax strategies that will help reduce your tax liability.

One of the most notable strategies is tax-loss harvesting. In its simplest form, tax loss harvesting occurs when a cryptocurrency investor intentionally sells digital assets to realize a loss which is then used to help offset any potential capital gains tax owed.

Crypto Accountants Ensure a Compliant and Accurate Tax Liability

Last, but not least is the expertise and guidance a crypto accountant can offer when calculating your tax liability. When calculating your tax liability, there is no shortage of potential errors that could be made.

A crypto accountant will be able to properly decipher what transactions are taxable and which are not. For example, most cryptocurrency investors are most likely not aware that cryptocurrency earned as income through credit card rewards are not taxable.