The world of cryptocurrency is incredibly exciting and only getting more popular by the day. Whether you’re a seasoned cryptocurrency expert or you’re just getting started with your investments, it never hurts to brush up on a few best practices that can make a significant difference to your portfolio.
There are unique features of cryptocurrency such as how it’s traded, stored, and taxed. It’s always beneficial to be aware of opportunities for fraud, theft, and lost assets. Here are some tangible tips from our crypto tax accountants.
Keep Detailed Records
Record keeping is of the utmost importance when it comes to your cryptocurrency investments. Every taxable transaction needs to be reported by line in order to abide with the IRS’ tax implications. As the IRS treats cryptocurrency as property, there are capital gains or capital losses associated with each trade. Keeping track of transaction details such as the acquisition and disposal dates is important for tax purposes. These records are also helpful in the case that crypto exchanges shut down. The best way to store this data is typically in a crypto tax software or in a database that you’ve formatted. Ideally, you’ll have one standardized spreadsheet to which you can refer as needed.
Leveraging blockchain explorers such as EtherScan or SolScan is helpful in case you’re missing transaction information or don’t have access to crypto tax software. A blockchain explorer can search your blockchain to find the missing information.
Maintain Good Wallet Hygiene
Whether you’re a novice or an expert, maintaining good wallet hygiene is key. It helps your crypto tax accountant better understand your transactions through a workflow perspective. You might assume that keeping all of your digital assets in one place is the best option, but this isn’t necessarily the case. Every activity including staking, mining, and NFT purchases should be in its own wallet to make different transactions easier to reconcile. Separate transaction-specific wallets also make it easier for reporting purposes.
The naming system that you use is also key to overall success. The more organized that you are with your crypto transactions, the easier it will be for your crypto tax accountant at the end of the year. If you need additional recommendations on what wallets to use, our team is happy to assist you!
Automation and Communication
The more automated your processes are, the better. One way to achieve this is by selecting the right crypto tax software that automatically calculates your profits and losses while simultaneously keeping a record of your transactions. Many of these also provide qualifying tax deductions and tax credit suggestions based on your specific information.
Of course, engaging with an experienced crypto CPA before the year-end is essential. The sooner you establish a relationship with them, the better your portfolio will be managed and tracked.
What We Recommend
If you’re looking for a team of crypto CPAs who can assist you with these best practices, we’re here to help! At Founder’s CPA, we are passionate about helping individuals and businesses alike with their cryptocurrency portfolios. Feel free to contact us today for a complimentary consultation on how we can help!