Calculate your Crypto Taxes Like a Pro
I’m not an accountant. I became involved with ZenLedger not because accounting excites me, but because new market spaces excite me.
There is nowhere else in the investment landscape where accounting lags far behind the volume of recent investment activity as in crypto. Every month, more wallets are opened, more transactions are logged, and more coins are mined. In that same month, very few CPAs, accounting firms, and tax attorneys take time to learn about the crypto market, about proper reporting and accounting practices, and about what to tell clients who come to them with basic questions.
This problem will invariably get worse before it gets better for three reasons.
First, accountants and attorneys are among the most risk-averse professionals in America. Their default answer is “I can’t advise you on that,” or “I’m not comfortable telling you what to do.” Between now and Tax Day 2018, tens — if not hundreds — of thousands of people will obtain ambiguous, incorrect, reluctant, or unintelligible answers from tax professionals who are understandably timid in providing advice in an area largely alien to their experience. ZenLedger is a needed solution to this and a needed translation tool between what is happening in the crypto market and what accountants and attorneys need to know to offer their clients sound advice.
Second, accounting firms and tax practices within law firms are swamped with a top-priority, mission-critical task: helping loyal clients navigate the thousands of changes contained in the newly-passed Republican tax plan. Having seen complex tax practices at top firms first-hand, these are groups of skilled people accustomed to gradual adjustments and tweaks to the tax code; a wholesale change in taxation enforcement is a once-in-a-career event. Most accountants and attorneys at top firms were in high school the last time tax reform this comprehensive occurred and most of the tax revisions of the Reagan era were double-checked as they emerged from dot-matrix printers. ZenLedger provides outsourced, sound expertise on an issue these firms don’t have time to learn about and manage.
Third, there is little activity from legacy providers of tax preparation software or DIY accounting tools to properly import, sort, and categorize wallet-level and transaction-level data generated by coin mining, purchases, sales, and swaps. Importation and correct interpretation of data on coins is non-trivial in its complexity — it requires a thorough understanding of three layers of activity (market activity, mining, and the ownership/wallet structure utilized by the investor) that ZenLedger can uniquely provide. Aspects of each coin’s pedigree, pre/post fork posture, ownership history, and trading timing all matter. Subtle differences between coins and systems can result in serious accounting errors, including miscalculation of cost basis, mistakes regarding applicable tax rates, and misidentification of the sale price.
I’m excited to advise ZenLedger because it is a needed product in an exciting space. There are so many things for crypto investors to learn about, explore, and exploit as they create — and participate— in this new market. Taxes shouldn’t be a distraction from those things. And, with ZenLedger, they’re not.
Karl T. Muth is an advisor to ZenLedger and has served as a mentor to startups for many years, including as an investor and on behalf of Microsoft Ventures, the Thiel Fellowship, and the University of Chicago. He designed and teaches the Innovation Management curriculum at Northwestern University where he is an Adjunct Professor of Law at Northwestern University’s Pritzker School of Law and holds a separate interdisciplinary teaching appointment at Northwestern in Economics, Organizational Behavior, Public Policy, and Statistics. He is @karlmuth on Twitter.