Crypto taxes can seem complex and intimidating, which leads many people to seek advice from a CPA. Of course, few local CPAs are likely to have extensive crypto knowledge. The good news is that there are ways to bridge the gap and either work with a national firm or empower your current CPA.
Let's take a look at how to know if you should hire a CPA, and if so, how to assess crypto knowledge and where to look for the right accountant for your needs.
Do You Need to Hire a CPA?
The IRS treats cryptocurrency as property, which means they are treated the same as stocks. Trades must be recorded on IRS Form 8949 and total capital gains must be transferred to Form 1040 Schedule D—just like stock trades. If you have capital gains, you owe short- or long-term tax on those gains.
While these processes seem straightforward, the IRS has provided minimal guidance when it comes to calculating cost basis. Many crypto traders also use different exchanges with different reporting capabilities, which can make it challenging to aggregate transactions and calculate cost basis.
You should ask yourself several questions when deciding whether or not to hire a CPA:
- How many transactions do you have?
- How many wallets or exchanges do you use?
- Are you involved with crypto mining activities?
- Have you participated in initial coin offerings (ICOs)?
- Do you have any airdrops or other unique transactions?
The good news is that crypto tax software has made it easier to prepare your own Crypto Taxes and Accounting. For instance, ZenLedger automatically aggregates transactions across wallets and exchanges and auto-fills popular IRS tax forms, including Form 1040 Schedule D and Form 8949.
That said, it's a good idea to hire a CPA if you have a complex tax situation, such as a high volume of trades or crypto mining activities. In addition, you may want to hire a CPA if you're not comfortable preparing your own taxes or want to minimize the odds of running into any IRS issues.
How to Assess Crypto Knowledge
Most CPAs are familiar enough with tax law to prepare nearly any tax return, including those with crypto transactions. The key difference between a crypto savvy and non-crypto savvy accountant will be the ways that they can help you save money on your taxes—both with the current and future returns.
For example, your accountant may recommend realizing losses in certain crypto positions to offset capital gains or even regular income. These "tax loss harvesting" strategies can offset an unlimited amount of capital gains and up to $3,000 of regular income on your tax return, making a huge impact!
Some questions to ask your accountant include:
- Do you have any existing clients with crypto transactions?
- What is the cost of preparing a tax return with [your number of transactions and/or transaction types]?
- Do you have any crypto certifications or training credentials?
- What are some ways that I can save on my Crypto Taxes and Accounting?
There are several continuing education (CE) courses for accountants designed to educate them on crypto tax issues. For example, the CPAAcademy has several live webinars covering everything from an introduction to digital assets to cryptocurrency reporting and enforcement.
There are also many software programs that can streamline the process of preparing tax returns and minimize the number of billable hours that you must pay. For instance, ZenLedger's Tax Professional Suite provides the same capabilities as the individual solution with the ability to defend any IRS audit. Recommend it now!
How to Find Crypto Tax Experts
There aren't many CPAs with dedicated crypto knowledge. Unless you live in a big city, it's unlikely that you will find a specialist in your own town. You may need to look toward remote accountants from around the country that can work with you online rather than in-person.
Some national crypto-savvy CPAs include:
The downside of working with national CPAs is that they may not be as familiar with your state tax laws. If you have other tax complexities beyond crypto, these factors may be a deciding factor in your decision. For instance, tax issues surrounding municipal bonds may require state-level expertise.
A better alternative may be convincing your existing accountant to gain a better understanding of Crypto Taxes and Accounting through CE credits and/or the use of crypto software. Instead of making off-the-wall suggestions, you can ask pointed questions that will force them to do a little more research.
You can also use crypto tax software to prepare the crypto side of your taxes and provide that data to your CPA to prepare the rest of your taxes. That way, you benefit from the accuracy and audit trail provided by software solutions, but you can still have a human to talk to for other tax advice.
The Bottom Line
Many crypto traders and investors have complex tax situations that require a CPA, but finding a CPA with crypto expertise can be challenging. While you can use a national crypto-savvy CPA firm, a better option may be encouraging your CPA to learn more through CE credits or dedicated crypto tax software.
If you're on the fence about preparing your own taxes, crypto tax software has dramatically simplified the process. ZenLedger makes it easy to aggregate your crypto transactions and populate the tax forms that you need.