Why Your Tax Prep Business Should Serve Cryptocurrency Investors
By Lucas Wyland on The Capital
Today, the market demand for professional cryptocurrency tax preparation services outweighs the supply by so much that the tax firms who offer cryptocurrency support are acquiring highly profitable clients at an astounding rate.
Cryptocurrencies like bitcoin have burst into the limelight over the past few years. The exciting technology has drawn tens of millions of everyday individuals into this new investment class, and there are no signs of slowing down. One of the largest issues that have come with the growth of this industry is that of tax compliance.
The vast majority of crypto investors come into the space unaware of the tax implications associated with buying, selling, trading, and investing in cryptocurrencies like bitcoin-which are very similar to that of investing in stocks. This has created an enormous demand for cryptocurrency tax prep assistance both from tax professionals and software tools. On top of this, new cryptocurrency guidance and warning letters sent out by the IRS are driving hundreds of thousands of U.S. crypto investors to seek professional help. This creates a large opportunity for tax prep businesses. We will analyze this opportunity and discuss why you should consider adding support for cryptocurrency further below.
Cryptocurrency Taxes 101
Cryptocurrencies are treated as property in the eyes of the IRS. Like other forms of property-stocks, bonds, real-estate-capital gains, and losses rules apply, and the income that one makes from investing in crypto assets is treated as taxable income.
In this sense, investing in cryptocurrencies looks a lot like investing in stocks from a tax reporting perspective.
For example, if you purchased 1 Bitcoin for $7,000 in June of 2019 and then sold it two months later for $8,000, you have a $1,000 capital gain. You report this gain on your tax return (specifically on Form 8949), and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This is how things work at a high level.
If you are a tax professional, you can learn a lot more about the specific tax implications of cryptocurrencies with our complete eBook (which is free to download): Cryptocurrency Tax Prep for Accountants & Tax Professionals.
Why are tax prep businesses flocking to support cryptocurrency?
Why are tax prep businesses quickly lining up to add cryptocurrency tax reporting as a service they offer? The answer, of course, is money.
Right now, there is a great opportunity for tax professionals to acquire highly profitable cryptocurrency clients and grow the value of their business much faster than would be possible by targeting traditional clients.
Simply put, the amount of people who need professional help with reporting their cryptocurrency taxes vastly outweighs the number of tax professionals and tax prep firms who are able to help them. Because the demand largely outweighs the supply, the tax firms who offer cryptocurrency support are picking up clients at an incredible rate.
Sharon Yip, who is the co-founder of Accointax LLC, is a great example of a tax professional who has built an entire business by solely serving cryptocurrency clients.
Sharon Yip, CPA, MST, MBA
“I built my tax practice, after 20 years in public accounting and corporate, in early 2018, solely focusing on servicing crypto tax clients. This year we expect to increase our revenue at least 10 times when compared to the last two years. There is such a large demand for crypto tax preparation and the professional fee for such service is usually much higher than a traditional tax return due to its complexity and time requirements. We are excited about the opportunity to help more taxpayers in the crypto space and to expand our tax practice to the next level.”
The IRS is making strides in the realm of cryptocurrency tax enforcement
Cryptocurrencies like bitcoin have been around for a number of years. The reason we’re now seeing the demand for professional tax services goes through the roof is because government agencies are taking notice to the industry’s lack of compliance.
In addition to these letters, the IRS released further tax guidance on virtual currencies for the first time in 5 years. This guidance came in the form of a 40+ question FAQ on virtual currencies as well as a new Revenue Ruling.
Finally, the biggest change of all — the IRS added a new cryptocurrency question to the very top of 1040 Schedule 1. The question read as follows:
“At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
Under penalty of perjury, every U.S. taxpayer (approx. 150 million) will now have to declare whether they transacted with virtual currencies like bitcoin. This new question is forcing taxpayers who have been “hiding” to officially declare their crypto transactions. If they haven’t been reporting crypto in previous years, which most have not, they will need to amend those prior years' tax returns. These are all things that cryptocurrency investors and traders are seeking professional help with.
It’s for these reasons that we are seeing the demand for cryptocurrency tax preparation services spike.
How your tax prep business can get started
This free eBook provides a foundation for everything you and your tax practice needs to know. From the basics of cryptocurrency, all the way to preparing necessary tax reports for your clients, this guide will help you get a handle on cryptocurrency taxation.
In addition, helpful reading includes all of the content the IRS has put out on virtual currencies:
Don’t worry — you do not need to become an expert in these technologies or on every single component of cryptocurrencies. As long as you are aware of the fundamentals, you will be able to understand the tax implications and have no problem helping clients report on their tax returns.
Cryptocurrency Tax Software
Learn more about how the CryptoTrader.Tax Tax Professional Suite can help your business start servicing crypto clients right here.
Market your tax firm
Once you are familiar with the ins and outs of cryptocurrency taxes, you can start marketing your tax firm as one that can handle crypto clients and returns. One great way to start is to add your firm to the crypto tax pro directories that exist online. Simply reach out to the website owners, and ask to be listed. Your firm can get listed on the popular CryptoTrader.Tax directory which fields requests from thousands of people seeking professional help. Just reach out to our team.
In conclusion
The increased IRS enforcement for cryptocurrency tax compliance is creating a great opportunity for tax firms to acquire new clients. Your firm should put a plan in place to start addressing this emerging space if you haven’t already. The cryptocurrency industry is still in its infancy, and we will see the market continue to grow at an exponential rate over the coming years.
Originally published at https://www.cryptotrader.tax.
