Bitcoin grew from a research concept in 2008 to a multi-billion dollar market in just a few years. Along the way, the world’s most popular cryptocurrency spurred a number of other coins designed to serve different purposes. There are now more than 2,200 coins, nearly 20,000 markets, and more than $80 billion worth of transactions occurring every day.
As the cryptocurrency market has matured, regulators have started to catch up. The IRS subpoenaed Coinbase in 2017 to turn over the records of nearly 15,000 individuals that may have evaded taxes on their crypto gains. These efforts have only intensified, which has increased demand for accountants and CPAs capable of handling complex crypto tax returns.
Let’s take a look at how enterprising CPAs can level up their crypto tax knowledge, grow their accounting practice and earn continuing education credits along the way.
Why Offer Crypto Services as a CPA?
Cryptocurrencies have become mainstream investments thanks to their lack of correlation to traditional investments, while their significant volatility has drawn in active traders.
A survey conducted by the Global Blockchain Council and SurveyMonkey found that 60 percent of Americans have heard of Bitcoin and around five percent hold the digital currency. If you extrapolate that figure to the entire population, there are an estimated 16 million Americans that own Bitcoin. These holders include both long-term investors and day traders.
According to the IRS’ recent Coinbase subpoena, only 800 to 900 taxpayers reported gains related to Bitcoin between 2013 and 2015, which means that most crypto traders could have significant tax liabilities. While compliance has improved since the subpoena, many long-term investors and short-term traders still require expert tax assistance.
These dynamics have created an opportunity for enterprising CPAs to address an underserved population with unique expertise to help them stay compliant and avoid an expensive audit. Given the complexity of these returns, many accountants report earning upwards of $1,000 per return, making these clients a valuable addition to their practice.
Where to Learn About Cryptocurrency
The biggest challenge for many CPAs is education. Unlike traditional investments, cryptocurrencies aren’t part of most college curriculums or industry continuing education resources.
The good news is that there is a growing number of educational resources designed to get you up-to-speed. You can even earn CE/CPE credits towards continuing education requirements along the way with courses that are certified by the government to cover relevant topics.
Some of the most popular courses include:
- Crypto Tax Academy lets you earn an Advanced Crypto Tax Expert (ACT-E) designation and up to 30 hours of CE/CPE credits with self-paced online classes covering everything from reconciling transactions to marketing strategies.
- CPA Academy provides a combination of free live CPE webinars and self-study CPE courses covering a wide variety of topics, including an exploration of how crypto works and the nuances behind the complex systems.
- Pronto Tax School’s Joshua Azran, CPA/ABV/CFF, CMA, CGMA, CFE teaches everything from how to find crypto clients to working through actual crypto returns to avoiding thorny problems.
If you already subscribe to continuing education resources, you may want to check with them to see if they are introducing any crypto-related courses, as they’re becoming more common.
How to Keep Up-to-Date with Crypto
Another challenge for CPAs is keeping up-to-date with the latest crypto-related regulations. While the agency hasn’t released an official update since 2014, there’s a growing demand from lawmakers to clarify its position on the matter to help their constituents stay on the right side of the law.
Some of the gray areas that could be addressed include:
- Acceptable methods for calculating the cost of cryptocurrencies.
- How to assess the cost basis assignment and lot-relief.
- The need for specific identification when spending or exchanging cryptocurrencies.
- How to account for hard forks, such as the Bitcoin Cash hard fork in 2017.
In addition to the IRS, cryptocurrency regulations could evolve under federal law. Lawmakers introduced a new law last year that would exclude cryptocurrencies from existing securities laws. The SEC also clarified the security question regarding tokens in its latest statement.
The best way to keep up with these changes is to subscribe to updates directly from the IRS and SEC, as well as set up Google News alerts to keep abreast of upcoming changes.
Specialized Crypto Tax Software
A final challenge faced by many CPAs eager to enter the crypto space is the actual process of preparing taxes. Looking up coin prices for thousands of trades, tracking cost basis by hand and calculating gains and losses across these transactions can be extremely time-consuming and challenging.
The good news is that there are software solutions that can help automate the process!
ZenLedger’s Tax Pro Suite enables CPAs to automatically aggregate transactions, perform calculations and pre-fill IRS Form 8949, Form 1040 Schedule D and FBAR/FACTA. The only thing you need is a client signature to complete the filing process, but if you want to make changes, you can easily update or edit data.
With a cloud-based platform, you’ll be able to manage multiple clients under one roof to help grow your practice and build a new revenue source without the stress.
The platform also offers full accounting transparency in an audit report with drill down functionality. You and your clients can walk through every buy, sell, trade and transfer to provide 100% confidence in the event of an audit.
The Bottom Line
Cryptocurrencies have become mainstream investments thanks to their lack of correlation to traditional investments, while their significant volatility has drawn in active traders. Despite this growth, there’s a lack of qualified CPAs that specialize in preparing crypto tax returns.
If you’re interested in reaching the ~16 million crypto traders out there, there are several steps that you can take to become an expert, keep up-to-date and automate the filing process for these complex returns.