When it comes to cryptocurrency, there are many unknowns around accounting, audit and assurance. With a lack of universal guidance, crypto assets can easily be over or understated, making risks much higher. Adding to the complexity is the fact that most taxpayers are unaware of the potential tax consequences of crypto.
With more than 50 million taxpayers answering ‘Yes’ to the IRS Virtual Currency question on the front page of the 1040 form on their 2021 tax returns, there is a pressing need for immediate access to tools for cryptocurrency tax preparation.
Significantly intensifying this need is the formation of a dedicated IRS team of criminal investigation professionals tasked with targeting taxpayers who do not report cryptocurrency transactions on their tax returns. This means that crypto audits will certainly be on the rise.
So, what can accountants do to prepare for crypto audits?
Understand crypto technology
It’s important to note that crypto transactions on the blockchain are not anonymous, the record is public. Blockchain technology enables accountants and auditors to access crypto information in real time—without having to wait for clients to provide data on their transactions.
Manage crypto compliance
Capital gains and losses are the principal compliance impact for crypto clients, which means crypto events must be accurately accounted for.
Taxpayers who hold cryptocurrency wallets are the most challenging for accountants and auditors because on-chain wallets are not designed for tax reporting. The main hurdle in this regard is to manage crypto data across multiple wallets, exchanges and transactions to calculate income, gifts, gains and losses.
Implement crypto tax reporting software
Altogether, these challenges result in an increased need for automation, analytics, and machine-learning capabilities. Supporting documentation, including contracts and invoices, could also be encrypted. That said, new procedures will certainly continue to be developed to obtain audit evidence directly from the blockchain.
By implementing crypto tax reporting software, accountants can make it easy for clients to connect their exchange accounts and wallets to identify taxable transactions, calculate the correct tax gain/loss, and import the results directly into an accounting firm’s professional tax packages.
The rise of crypto tax reporting software
With crypto taxable transactions continuing to increase in volume and the IRS making crypto a top priority for enforcement, tax professionals need tax reporting software that streamlines the crypto compliance process.
With tax software built specifically for reporting crypto, accountants can save time and build confidence managing the reporting of their clients’ cryptocurrency activity with tools that range from basic crypto tax calculations, transaction tracing, and automated reporting. Plus, it conveniently integrates with tax preparation software.
Using a streamlined approach to managing crypto compliance, today’s accounting firms can capitalize on increasing engagements and even expanding into offering crypto tax planning and advisory services.
What are the benefits of crypto tax reporting software?
Crypto tax reporting software supports a wide range of integrations across major blockchains, cryptocurrency exchanges, and accounting platforms to identify taxable transactions.
The platform calculates the gain/loss in the necessary reporting format and connects to an individual’s crypto sources to identify taxable transactions, calculate gain/loss, and enables accountants to import the results into professional tax packages. Supporting details track the movement of crypto currencies between exchanges and wallets to prove which transactions are taxable verses tax– free transfers.
What should accountants look for in crypto tax reporting software?
The urgency around crypto is only escalating. With the IRS reporting at least 8% of U.S. taxpayers have reportable activity in crypto, many of these gains/losses are not being properly reported. As the IRS continues to make crypto tax a top priority for compliance and enforcement, clients are looking to their tax professionals for assistance.
Here’s what to look for in cryptocurrency tax reporting software:
- AICPA SOC 1 & 2 audited tax software. Ensures verification of internal controls endorsing industry-leading data security.
- Client and team management. Structured team access that provides visibility into the status of where a client is in the workflow process.
- Complete fee accounting. Capability to account for fees allows wallet and exchange cost basis calculation to minimize tax.
- Current year gains and losses. Up-to-the-minute reporting promotes client engagement with tax planning and advisory services around their crypto assets.
- Transaction matching. Automatically trace when holdings move between wallets and exchanges and track the cost basis to ensure clients returns are accurate.
- Exclusive integration. Reporting can be easily imported into your tax preparation software.
By implementing crypto tax reporting software, the return on investment for accounting firms is almost immediate. Instead of spending hours analyzing client’s crypto data and deciding on the tax treatment, accountants can import and evaluate several clients’ data in the same amount of time. This allows accounting firms to shift their focus to more meaningful conversations and add greater value to their client relationships.
Where can I find cryptocurrency tax reporting software?
Thomson Reuters has the partnerships and integration to meet your cryptocurrency tax reporting needs.
By streamlining your crypto tax compliance workflow process with Ledgible, the only crypto tax platform specifically designed to help tax and accounting professionals, accounting firms like yours can connect with your client’s cryptocurrency portfolio, automatically calculate taxable gain/loss from activity, and properly report transactions.
Ledgible directly integrates with Thomson Reuters® UltraTax CS and GoSystem Tax RS providing automation of crypto activity in a structured format that saves time and makes it easier for firms to deliver insights and expand service offerings to provide year-round crypto advisory, reporting, and tax planning.
Empower your firm’s staff to account for crypto transactions in their workflow process by collaborating with clients in a certified and secure platform. By simplifying crypto compliance challenges, your firm can capitalize on proactive tax planning and advisory service opportunities.
Audit solutions for accounting firms
As the profession evolves, accountants are expanding their offerings, and that includes audit services. From auditing crypto to helping clients with transparency in ESG initiatives, accountants can take advantage of the latest advances in technology and automation to succeed in today’s complex landscape.
Thomson Reuters has a long history of providing audit solutions and leading audit methodology backed by experienced editors and authors who can ensure compliance with professional standards and peer review.
From financial statement compilation and reports to financial audit management, value-added analysis, and more, accounting and auditing software and guidance from Thomson Reuters can help you serve all your client’s accounting, audit, bookkeeping, and financial needs with maximum efficiency.
For more information on Cryptocurrency, we invite readers to download our recent whitepaper:
What tax and accounting professionals need to know about the tax treatment of cryptocurrencies