Home » Warning: Do NOT Start Your Crypto Accounting Until You Read These 7 ‘Jaw Dropping’ Facts…

Warning: Do NOT Start Your Crypto Accounting Until You Read These 7 ‘Jaw Dropping’ Facts…

by janeausten

Introduction.

Th crypto market has gotten unimaginable recognition. This high recognition is due to increased gains, low cost of transactions, and financial securities, which makes people troop into cryptocurrency without a second thought.

But you should know that cryptocurrency transactions are attached to special tax deductions. Being equipped with adequate knowledge before starting crypto accounting is essential for many reasons. Understanding how digital currency works before investing, appropriate measures to make tax accounting more straightforward and the benefits of using relevant channels for Cryptocurrency accounting will aid in making the processeasier and risk-free. 

This article will give seven unique tips to help you have a wonderful and stress-free crypto tax accounting experience.

1.) Get A Professional Crypto Tax Accountant.

A crypto tax accountant or cryptocurrency CPA is an individual who specializes in cryptocurrency tax accounting services. A good accountant knows the appropriate way to handle differences in crypto transactions, such as trading and stalking, among others.

The knowledge they possess will aid in clarifying liabilities during unforeseen circumstances. They use appropriate gadgets to handle all transaction issues. Therefore, getting a professional account will make your accounting for Cryptocurrency easier, faster, less risky and time-consuming, and perhaps even less expensive.

2.) Use Excellent Crypto Tax Software To Track Transaction Details

There is special software used in preparing Cryptocurrency tax assets. This crypto accounting software tracks transaction details excellently and keeps records. Some examples of such software include Crypto Worth, Soft Ledger, glided, and Bitcoin Sync by Block path.

This software has many unique advantages, including syncing transaction details to QuickBooks, streamlining bookkeeping, and managing distributed operations and assets, among others.

3.) Practice The Following Tips To Make Your Account Top-Notch

Maintaining Excellent Wallet Hygiene.                   

Whenever you hear the word “wallet hygiene”, it means your ability to track digital assets with suitable protocols and labels. Good wallet hygiene is essential in tracking and understanding transactions made by both regular and high-net-worth investors.

Always remember to keep details of all transactions in a specific wallet and use a consistent naming system for different files to make tracking easier. Examples: You can use names like Defi transactions, revenue, and investment for individual folders.

Maintain A Single Exchange

You should know that there are many types of exchanges in cryptocurrency, which include centralized, decentralized and hybrid exchanges. Single exchange happens when you choose one kind of exchange in digital trading currencies.

Using a single exchange will help keep transaction details intact and easy to understand. Using multiple exchanges might create unnecessary complications during tax reporting. Tax accountants might find tracking very stressful when you use numerous exchanges due to 2 reasons:

  • Pulling prices from different sources can be time-consuming since tracking is mostly a manual task.
  •  Errors might occur during CSVs combination since all exchange data are in different formats.

Always Keep All Transaction Records

This process involves the way you keep all the records of all Transaction details. The details might include the type and date of the transaction, as well as gains and losses.

Keeping this record is essential since cryptocurrencies don’t always have a unique self-documenting feature which can make Crypto accounting easy. It usually records letters and numbers examined through an explorer such as ether scan, and the information is generally hard to interpret.

4.) Be Familiar With Crypto Tax Accounting Regulations

Countries such as the US, Singapore, Canada, Japan and others have different laws governing cryptocurrency transactions. Getting familiar with regulations governing crypto tax accounting is essential in avoiding penalties from tax management bodies.

Abiding by these rules and regulations has many benefits. Some of these benefits include preserving financial stability, protecting crypto traders, and encouraging crypto asset attractiveness.

5.) Know The Various Types of Crypto Exchanges/Trading And Their Taxing Methods

There are many unique trading/exchange methods in cryptocurrency. Various exchanges/trading require special taxation. Knowing these trading/exchange methods and the taxes imposed on them is essential in making accounting for crypto easier. These methods include scalping, range trading, day trading, dollar cost averaging, and high-frequency trading.

Failure to pay taxes attached to exchange/trading methods can incur penalties, high interest and even criminal prosecution.

6.) Know The Different Types of Cryptocurrency Taxations And Rules Governing Them

Every cryptocurrency transaction has a special tax imposed on it. There are two main types of taxes imposed on cryptocurrency transactions. These taxes are Capital loss and gains, and they have different taxation rules governing them.

Capital gains tax: This is taxation on the profit from selling or exchanging digital assets such as Bitcoin.

Capital loss: This usually happens when you purchase an asset and sell it at a lower price than you paid. In general, your capital gains (your profit) minus your capital losses determine the amount income you pay tax on. A capital loss strategies are often used to offset capital gains tax. Capital losses while not desirable, allows you to reduce the amount of tax paid on capital gains.

 7.) Know How to Calculate Capital Gains And Capital Losses

Capital gains and Capita loss are gains and losses you encounter when selling an asset. These gains or losses fall within two categories. These are long-term and short-term, and the IRS treats them differently.

Long-term capital losses and gains: 

When assets are held for over a year and sold, they are taxed as long-term capital gains between 0%, 15% or 20%, according to the 2022 taxation rule. This is normally a lower tax rate than “short-term” capital gains rates.

Short-term capital losses and gains:

This usually happens when an asset is held for a year or less and sold. The percentage of taxation on the profit is between 10% and 37%.

Related Questions Always Asked by Crypto Investors:

How Are Crypto Trades Taxed?

Cryptocurrencies are digital assets that are taxed just like regular income. You can be taxed when you trade your NFTs by standard trading cryptocurrency, exchanging between different cryptocurrency assets, paying for goods and services with cryptocurrency, or purchasing crypto with dollars.

Why Is There An Absence of Laws on Cryptocurrency, But Multiple Laws on Cryptocurrency Taxes?

There are no laws on cryptocurrency due to its decentralized nature. Decentralized means multiple owners own it. Having many owners can make imposing laws on cryptocurrency hard.

How Are Crypto Taxes Handled?

The best way to handle crypto taxes is by using good crypto tax software or hiring the service of a crypto tax accountant.

Conclusion

Having outstanding knowledge of essential things before starting your Crypto accounting is paramount. Getting a professional tax accountant will make crypto accounting stress free and faster. Using excellent software to track transaction details usually helps track, record, and manage transaction details. Maintaining wallet hygiene and single exchange is essential to having a top-notch tax account.

Familiarity with task accounting regulations and capital gain and loss calculations, among others, are necessary before crypto tax accounting. How are crypto trades taxed and how are crypto taxes handled are among the most commonly asked questions by investors.

Author Bio:

Stephan Knight is a nationally recognized, veteran Crypto Tax Accountant with 20+ years of experience in accounting. He currently works at Results Tax Accountants, a firm specializing in helping individuals and businesses with their Cryptocurrency tax and accounting needs. He’s also a co-author of a FREE Crypto tax and accounting blog at www.ResultsTaxAccountants.com/blog

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