The Top 6 Issues in Preparing for Your Crypto Tax Compliance
The Network Firm provides a white-glove consulting service tailored to the unique needs of our clients dealing with crypto transactions. From advanced tracking software to manual reconciliations and special considerations, our crypto tax accountants ensure a seamless and thorough tax preparation process.
Navigating the complexities of cryptocurrency tax compliance can be daunting. As the crypto market continues to move from niche to mainstream, understanding and complying with crypto tax rules has become a top-of-mind concern for individual and digital asset companies alike. New legislation and enforcement initiatives are being introduced regularly, making it essential to tune into effective crypto tax compliance strategies to mitigate financial risks and avoid costly penalties.
Here are the top six issues to consider in preparing for your crypto tax compliance:
1. Taxable Crypto Events
Identifying taxable events is crucial for crypto tax compliance. Because the IRS treats cryptocurrencies as property for tax purposes, transactions such as selling crypto for fiat, trading one cryptocurrency for another, and using crypto to buy goods or services are all taxable.
Our Solution: Our crypto tax professionals provide clients with specialized software that automatically identifies and categorizes taxable events. Our team of experts then manually reviews these transactions to ensure accuracy and completeness.
Example: When you trade Bitcoin for Ethereum, our system records the transaction, and our consultants ensure that the fair market values are correctly calculated and reported.
2. Wallet Completeness
Ensuring all wallets and accounts are tracked is important for accurate reconciliation. The Treasury and IRS recently issued final regulations aimed specifically at improving crypto tax compliance. Starting in 2026, brokers will be required to report gross proceeds on digital asset sales, with basis information reporting following in 2027.
These changes in crypto tax compliance stem from the Infrastructure Investment and Jobs Act, which introduced new rules requiring digital brokers to issue 1099-B forms for their customers and mandating that transactions over $10,000 be reported to the IRS, including details about the payer.
Wallet completeness involves more than just monitoring basic transactions. To stay compliant with crypto tax rules, it requires thorough tracking of all transaction histories across every wallet and account, including internal transfers, deposits, and withdrawals. Failure to capture even a single transaction can lead to discrepancies, making it difficult to reconcile accounts and increasing the risk of non-compliance.
Our Solution: Our advanced crypto tax compliance software integrates with various wallets and exchanges, ensuring comprehensive coverage of all your crypto assets. We meticulously verify and reconcile all transactions, making sure no activity is missed.
Service Highlight: Our crypto tax professionals conduct a thorough review of all linked wallets and accounts, providing peace of mind that every transaction is accounted for and accurately reflected in your tax reports.
3. Tracking and Documenting Transactions
Cryptocurrency transactions are complex and numerous, requiring precise tracking and documentation due to diverse blockchain structures, multiple transaction types, decentralized exchanges, and the need for accurate data management.
To ensure crypto tax compliance, organizations must implement robust systems that can seamlessly integrate with various blockchain networks, accurately capture transaction details, and adapt to evolving regulatory requirements, ultimately safeguarding against potential audits and penalties while maintaining financial transparency.
Our Solution: Our advanced tracking software consolidates data from multiple exchanges and wallets, providing a comprehensive overview of all transactions. Our crypto tax accountants perform a manual reconciliation to verify the accuracy of this data, ensuring no transaction is overlooked.
Service Highlight: We maintain detailed records, including dates, amounts, transaction types, and counterparties, which are crucial for audit trails and crypto tax compliance.
4. Valuation Challenges
The volatility of cryptocurrencies poses significant valuation challenges, impacting the calculation of gains and losses. As market prices fluctuate, establishing a fair value for these digital assets can be an uphill battle.
To comply with accounting standards and crypto tax rules, investors often adopt fair value accounting, which means regularly adjusting the cryptocurrency's value based on current market conditions. However, this frequent revaluation can lead to substantial unrealized gains or losses on financial statements.
Our Solution: Our expert crypto tax accountants use consistent and reliable sources for cryptocurrency prices, ensuring that valuations are accurate and compliant with IRS guidelines. Our consultants apply these valuations consistently across all transactions.
Best Practice: By leveraging real-time data and historical price points, our crypto tax professionals help our clients minimize discrepancies and ensure fair reporting.
5. Handling Forks and Airdrops
Cryptocurrency forks and airdrops add layers of complexity to crypto tax compliance, as they are treated as taxable income by the IRS. While most crypto investors are generally accustomed to reporting taxes only when they sell or trade their assets, crypto tax rules require that airdrops must be reported as income, even if there hasn’t been a sale or trade. Similarly, any new coins received from a fork must also be reported as income, with the value of the new assets calculated at the time they are received to ensure accurate tax compliance.
Our Solution: Our team provides expert guidance on navigating crypto tax rules for forks and airdrops. We ensure that the fair market value of new coins received through forks or airdrops is accurately reported as income, following IRS requirements.
Special Consideration: We assist with specific events such as SAFT agreement vesting, staking revenue, and derivatives trading, offering tailored solutions for each scenario.
6. Navigating International Transactions
For clients involved in international crypto transactions, crypto tax compliance is further complicated by varying tax laws across jurisdictions. With the ongoing development of global legislation, including the Organisation for Economic Co-operation and Development’s Crypto-Asset Reporting Framework (CARF), staying compliant requires not only a deep understanding of current crypto tax rules but also anticipation of future reporting standards.
Our Solution: We provide comprehensive international crypto tax compliance services. Our experts are well-versed in global tax regulations and ensure that our clients meet all domestic and international crypto tax compliance obligations.
Global Expertise: Whether you are trading on international exchanges or engaging in cross-border transactions, our team provides the necessary guidance and support to navigate these complexities.
Why Choose The Network Firm for Crypto Tax Compliance?
At The Network Firm, our expert crypto tax professionals understand that each client's situation is unique. Our white-glove consulting service offers personalized solutions, from advanced tracking software to manual reconciliations and special considerations. Our goal is to provide a hassle-free and thorough crypto tax compliance and preparation services to ensure that our clients are fully compliant and optimized for tax efficiency.
Get Started: Contact us today to learn more about how we can assist you with your cryptocurrency tax compliance needs. Our team of experts is here to provide the support and expertise you need to navigate the complexities of crypto taxes confidently.