4 Things Accountants Should Know About Trading Cryptocurrencies – 2023 Guide
The popularity of cryptocurrencies is rapidly increasing over time, which is not a surprise considering the rise of the value of the most popular options like Bitcoin, Ethereum, and more. It is especially attractive to investors because it represents a great way to earn profit over time, and there are different methods of gaining profit from cryptocurrencies. While the most effective option, in the beginning, was to mine crypto, this process became more complicated over time, especially when it comes to Bitcoin.
On the other hand, the high volatility on the market attracts people to start trading or investing in various options and wait for a bigger value. The most popular cryptocurrency is Bitcoin, and you can visit d-addicts.com to read some interesting facts about this digital asset.
The main feature of cryptocurrencies is that they represent decentralized units, which means that there is no third party involved in transactions. Since they are not linked to official financial institutions, investing in these options is a great way to secure your assets in case of an economic crisis, which was one of the main reasons for making blockchain in the first place.
On the other hand, there are many misconceptions related to this market, and the most popular one is that it can be used for criminal activities and funding terrorist organizations. However, while you can remain anonymous during transactions, the whole system is transparent, which means that there are data about transactions stored in the blockchain. Also, many countries are planning to introduce various regulations to implement the blockchain into the existing monetary system. The United States already introduced a set of laws, and you are obligated to pay taxes as an owner of Bitcoin in this country.
According to the law from 2014, cryptocurrencies as treated as property when it comes to taxes. However, the main difference is that you don’t have to pay any taxes while you are keeping it on your e-wallet, but only during transactions. Also, since this is a new field in the taxation system, it is very important to hire an accountant who has experience with forms related to cryptocurrencies. Here are the most important things that accountants should know about trading with cryptocurrencies.
1. Every Transaction is Subject to Taxation
It is crucial to know this since it can help you to avoid any issues. Also, as an accountant, you can create serious problems for your clients by avoiding some forms. AS we already mentioned, the moment taxation is mandatory after any sort of transactions, and the main issue is related to the current value of cryptocurrencies, and how much did the client pay for them before. For example, if you bought BTC when its value was $3,000, and you recently decided to buy some vehicle, after the price of Bitcoin reached the value of over $50,000, you will have to pay the tax for a capital gain, along with the one for the vehicle.
2. It Can Be Complicated
Since every transaction must be recorded and filed with a form, it can be difficult to deal with the whole process, especially for the accountant who was hired by some day trader and the person who has a lot of different cryptocurrencies and a lot of property bought with them. Therefore, people, in general, must learn more about this process and the importance of keeping records related to their activities.
The calculations can be especially difficult since you will have to calculate taxes for each transaction by using the value of a particular cryptocurrency on the date of the trade, and combine it with the market price of the date when the client decided to buy it in the first place. The main issue is that many people don’t know much about this, which makes the whole process complicated and long-lasting.
3. It Can Be Filed as a Hobby or Business
For most people, it is a great thing that they could file a report for their taxes where they can add that their activities with cryptocurrencies are a hobby. This is especially beneficial for miners. On the other hand, bigger facilities have to report that they have a business related to virtual assets. Another advantage for miners is that they could ask for a deduction by reporting their expenses from electricity, hardware, and more.
4. Common Mistakes Made By Clients
There are many potential issues that accountants can have when they need to file taxes for their clients who were trading with cryptocurrencies. First, we have to mention the lack of knowledge and avoiding keeping records in the right order. Also, many of them often provide false information related to their profit and losses, which can lead to additional problems for them as well. Also, we expect a further improvement of various regulations in the future that will make the activities with this market even more transparent, which will make it much easier for accountants to deal with various clients. For more information about this service, you can find it at Lear & Pannepacker.
The Bottom Line
With the expansion of cryptocurrencies in the whole world, keeping the touch with the most recent news and laws related to this market can be crucial for accountants to get more clients. It represents a great opportunity considering that many people have avoided filing any reports on their activities on this market. If you would like to know more about current stocks check Finscreener which is a useful stock screener for investors and traders.
Also, there is still a lack of people who are familiar with the whole process. Therefore, learning to help people with their forms and how to avoid potential issues with the IRS can be a very profitable business.
Moreover, with the huge potential of Bitcoin and other cryptocurrencies, we expect further development and implementation of them in the financial system. Also, even though currently they are considered property, there is a chance that at some moment the government could change that regulation and start treating cryptocurrencies as digital currencies in the same way as fiat currencies. However, that will require a whole new set of laws and regulations, along with new methods of filling forms and taxation processes.