You need to keep current, accurate records of all your cryptocurrency transactions. Most likely, you also need to file quarterly estimated taxes to keep your IRS tax bill small at the end of the year. Finally, you also need an error-free, complete, and on-time Federal (and possibly a state and city) income tax return ready for April 15th. Perhaps you’re up to this challenging task. However, if you’re not, then you need to seek out the services of the very best crypto-versed tax accountant or CPA available.
Here’s what to look for when evaluating your crypto accountant.
Four Steps to Locating a Good Crypto Accountant
When you need the services of a good dentist, plumber, landscaper, or auto mechanic, you’ll usually ask your friends or family members for some advice. Chances are, they know someone in that line of work or they know someone who knows someone, etc. However, crypto tax accountants aren’t on every street corner, especially if you live in a small town.
Calling local accountants and CPAs might help you locate some worthy leads, even if those you contact aren’t equipped to handle cryptos. You can also do an online search for crypto CPA, crypto tax prep, and crypto accountant. This will turn up dozens of potential leads, and can be a good starting point for your vetting process. Online reviews can also be useful. Be careful with these, as some of them read more like advertisements rather than objective client evaluations.
I have worked with CPAs in my hometown and have also used the services of CPAs on the other side of the country. They have competently handled tax matters ranging from the mundane to the highly complex. If possible, always use a CPA. Preferably one who is an IRS enrolled agent (EA). Enrolled agents are permitted to represent you before the IRS, and can be worth their weight in gold if you receive a nasty tax penalty letter from Big Bro.
So, don’t be fearful of hiring a long-distance crypto CPA or accountant. It’s nice to be able to meet your tax pro in person, but if that isn’t feasible, the wonders of video chat, smartphones, the cloud, and email can make the process nearly as personal.
2. Proof of Crypto Tax Knowledge:
When you’ve located a potential crypto CPA lead, contact them and ask them the following questions:
- How many cryptocurrency tax returns have you prepared over the past five years?
- Have you received specialized instruction in cryptocurrency tax preparation?
- Do you stay abreast of all of the new regulations and tax laws concerning cryptocurrencies?
- Do you possess any certificates proving your competence in crypto tax prep?
- How many of your crypto clients were audited by the IRS over the past five years (you may hear the line go dead after asking this one!)?
Now, it’s possible that even a good crypto CPA isn’t going to divulge how many of their clients (if any) were audited by the IRS. However, at the very least, make sure they are skilled in crypto tax preparation and have a verifiable, long-term track record.
3. Responsive Communication:
Make sure your crypto CPA can be reached easily. And make sure that you can be, too. Your CPA firm may need clarification of various forms and documents. Perhaps they’ve found an error that needs your immediate attention. Fast, reliable, transparent communication between you and your crypto tax preparer can help make the entire process quick and error-free. The more tech-savvy you and your CPA are, the better. For example, perhaps you can forego the cost of overnight courier service by scanning and emailing your documents. You could even upload everything to the cloud and share the document links with your CPA.
CPA tax preparation services aren’t cheap. Then again, the little, franchised tax prep joint at the mall might get the job done, or they might screw up. Why take the chance? Once you have located a crypto CPA with excellent qualifications, check their rates. Your crypto CPA will want to prepare your entire Federal tax return (highly desirable) and not just your crypto capital gains and losses (Form 8949 and Schedule D). Don’t allow two different firms to prepare separate parts of your Federal tax return. Have all the work done by your crypto CPA. That way, if you’re audited, they can better represent you before the IRS.
If you’re a professional crypto trader, with thousands of trades per year (and a Schedule C or other business-related tax forms to complete), your tax prep fees will be substantial. However, if you’re simply a crypto investor with a modest number of annual trades, expect to pay less. Basically, you need to shop for the crypto CPA or accountant with an attractive combo of references, proof of crypto knowledge, responsive communication and price.
Evaluating Your Crypto Accountant
Once your tax return is complete, autographed and on its way to the IRS bean counters, it’s time to relax. Your only task now is to verify that the IRS has accepted your tax due payment or has issued you a refund. It might take a few weeks for you to see the transactions posted in your bank account.
Now it’s time for evaluating your crypto accountant. Are you satisfied with their level of professionalism, crypto-related and general tax knowledge? Did they prepare an error-free tax return for you? Was your tax return completed on-time, or even ahead of schedule? Was your CPA able to find some little-known tax loopholes for you to exploit? A good CPA will usually pay for themselves in tax savings right away. The more familiar that your CPA or other tax pro becomes with your unique crypto trading, business and family finance details, the more valuable their services may become to you. When you find a capable CPA firm, stick with them!
Grey Areas Exist Outside of Area 51
The IRS tax code is thousands of pages long. There’s not a person alive that can begin to accurately comprehend and interpret every single rule within it. Some of the rules and regs even appear to be at odds with each other. That’s no big surprise, as the tax laws have been cobbled together by hundreds of different special interest groups since 1916. Whatever else it is, it’s certainly a mess, one filled with exploitable gray areas.
Take It to the Limit
A good CPA knows this and is prepared to make the IRS tax code go to work for you. If your crypto CPA firm specializes in pushing the limit (successfully, of course) on the gray-area, conflicting parts of the tax laws, go for it! You might just pay less in income taxes.
Even better, having the muscle of your CPA or enrolled agent doing some gray-area magic for you will give you added confidence when you file your tax return. Not every crypto tax return will benefit from such aggressive interpretation of the IRS code, but you might be pleasantly surprised at how much a sharp (and yet fully-IRS compliant) CPA can save you in Federal income taxes. The more complex your tax situation is, the more opportunities there are to exploit loopholes.
Tax evasion is illegal. Tax avoidance is not. Find a highly-qualified crypto CPA or accountant and put their experience to work for your unique tax situation. The money you save in tax avoidance will be worth it.