Preserving crypto profits: Why you need a crypto tax accountant

As the digital assets market surpasses $2 trillion (at the time of writing), tax authorities like the Internal Revenue Service have intensified their scrutiny of crypto transactions. This increased attention means investors who misreport or fail to file their crypto earnings could face hefty penalties, which can drastically cut into their potential profits. Even seasoned traders struggle to navigate the ever-changing laws, prompting many to turn to crypto tax accountants for specialized guidance.

In this guide, we’ll cover essential tips for finding the right crypto-savvy CPA, including key questions to ask to ensure you stay compliant and maximize your tax savings.

Do you need an accountant for crypto?

As the cryptocurrency market expands in size and complexity, more traders are finding value in seeking advice from a crypto accountant. Filing taxes independently can be tedious and prone to errors, especially for those unfamiliar with the evolving tax regulations. Even when filing correctly, traders may miss out on key deductions or strategies like tax-loss harvesting, potentially leaving money on the table.

A crypto tax accountant provides personalized guidance by organizing and analyzing transactions to ensure compliance while maximizing after-tax cash flow. Their expertise is particularly beneficial when dealing with advanced strategies like staking, NFT trading, and liquidity mining, where tax implications can become complicated.

Although not required, working with a crypto tax professional is the most effective way to maximize accuracy and profitability, especially for traders with complex portfolios.

What to ask a crypto accountant before hiring them

While hiring a crypto tax advisor is often a smart move, not all accountants have the specialized skills required for this complex area. With your profits and losses on the line, it's essential to be selective when choosing tax services. Beyond checking reviews and evaluating an accountant's track record, the most effective way to gauge their web3 expertise is by asking targeted, industry-specific questions.

Do you have existing crypto clients?

Traders should avoid becoming a case study when filing crypto taxes. Accountants typically charge by the hour, so it’s not cost-effective to have them spend time learning basic concepts like “what is staking.” No matter how impressive a tax professional’s credentials are, firsthand experience with crypto tax reporting is irreplaceable. Only accountants with a proven track record of handling crypto clients can successfully navigate the unique challenges involved.

Given the complexities of the evolving crypto tax landscape, real-world experience is indispensable. Accountants who specialize in crypto taxes, and who are familiar with trading and decentralized finance (DeFi) concepts, bring unique insights to the table. Their years of experience enable them to ask the right questions, ensure accurate filings, and confidently navigate unforeseen challenges.

Do you understand different crypto transactions?

Transferring virtual currency involves more than just moving Bitcoin (BTC) between wallets and exchanges. With activities like minting, mining, staking, and earning crypto through airdrops or hard forks, there are countless types of cryptocurrency transactions, each carrying its own set of tax implications. Accountants who understand the range of opportunities available to crypto traders are in a better position to categorize these activities correctly, identify potential deductions, and prevent misrepresentation in tax filings.

Have you filed an FBAR before?

Just like cryptocurrencies, many crypto-related services are borderless. Traders who use certain offshore platforms such as foreign exchanges or wallets may be required to file a Report of Foreign Bank and Financial Accounts (FBAR) to comply with IRS regulations. Failing to properly file an FBAR can result in serious consequences, including substantial fines. For traders using foreign services, working with accountants who understand the intricacies of FBAR reporting is essential to avoid these risks.

Do you use crypto tax software?

Accountants who aren't using crypto tax software like CoinTracker may not be operating as efficiently as possible for their clients. While Excel or Google Sheets can track basic data, specialized software designed specifically for crypto tax reporting streamlines the process of tracking, estimating, and generating accurate forms. When an accountant uses up-to-date crypto tax software, it shows they’re fully equipped to manage the complexities of a crypto trader’s portfolio with precision and speed.

Do you trade crypto?

Handling crypto clients is one thing, but actively trading digital assets gives a CPA a more hands-on understanding of the market. With personal investments at stake, these accountants are more likely to stay updated on the latest developments, providing clients with more informed, tailored advice to maximize capital gains. This practical experience enables them to navigate the intricacies of crypto trading, offering insights that go beyond standard tax strategies.

When do you need an accountant for crypto taxation?

While hiring a crypto tax accountant is optional, certain situations make expert guidance highly advisable. If you're dealing with complex or uncommon crypto transactions, a qualified CPA can help navigate the nuances with confidence, making sure everything is handled correctly. Here are a few scenarios where hiring a crypto tax accountant might be the best move:

You invest in DeFi

DeFi offers crypto traders unique services not available in traditional finance, but these intermediary-free opportunities still come with significant tax obligations. Activities such as peer-to-peer (P2P) lending, borrowing, and staking each have specific reporting requirements that can be complex to navigate. Without the support of a crypto tax professional, traders risk misreporting their DeFi transactions, which could lead to compliance issues or overpaying their taxes unnecessarily.

You've used a collapsed exchange

From Mt. Gox to FTX, the cryptocurrency world has seen its share of bankrupt exchanges that left clients stranded. If you have crypto trapped on a failed platform, tax season doesn't have to add to your woes. A certified accountant can help you report these losses and potentially secure deductions to ease the financial blow. While it won't make creditors whole, accurately reporting these losses can provide some relief in a difficult situation.

You've had crypto stolen

Just like failed exchanges, cybertheft remains a serious threat in the crypto space. If hackers steal digital assets from your wallet, there might be legal options to recover those losses. Reporting stolen crypto can be tricky and often varies depending on local laws, but partnering with an experienced accountant can increase the likelihood of navigating the process successfully.

You're being audited

Facing a tax audit is stressful enough without the added complexity of crypto transactions. To prevent issues from escalating with the IRS, it’s smart to work with an accountant who can offer professional representation and manage communications with tax authorities. Certified public accountants know how to review the necessary documentation and can help resolve discrepancies quickly and favorably, reducing the potential for penalties.

You want to pay the least tax possible legally

To maximize deductions, a crypto tax accountant with real-world experience is invaluable. Experienced CPAs ask the right questions to uncover opportunities for claims and reduce tax liability. They can also help traders time significant transactions strategically, avoiding hefty tax bills and offsetting gains with well-planned losses. Consulting with an accountant ensures that every possible deduction is explored, helping traders make the most of their investments while staying compliant with tax regulations.

Connect with CoinTracker tax pro 

Whether you're working with a crypto accountant or seeking expert guidance, CoinTracker offers several ways to connect with trusted tax professionals. CoinTracker’s support team is available for general crypto tax questions, and with a CoinTracker Tax Pro subscription, you gain access to personalized advice on optimizing your tax returns from experienced crypto experts. Traders can also invite their existing CPA onto CoinTracker to review a full record of their web3 activity and directly edit transaction data within one streamlined platform.

Not sure if CoinTracker Pro is the right move just yet? Start with CoinTracker's free account to get acquainted with our award-winning crypto tax software. 

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.