Here are the top 13 essential questions you must discuss with your crypto tax accountant this tax season –
1. Do You Regularly Work for Crypto Clients? What is the Process You Usually Follow?
Talk to the accountant about their experience of working with other crypto clients. Discussing their past experience will help you gauge their expertise and understand how well-acquainted they are with this field. Discuss their process to understand what you can expect from them and how they plan to go about your tax filing.
2. Please Explain What are Taxable Crypto Events & are Non-Taxable Crypto Events? Which Categories Do My Transactions Fall in?
An experienced crypto tax expert should be able to take a look at your transactions and point out the taxable events. They will look at the cost, sale value, and fees associated with your transactions to determine the taxable crypto events. In general, the taxable value of crypto gains is calculated just like capital gains in gold or stocks.
3. How Can I Obtain Accurate Records of My Crypto Transactions?
Compiling a reliable record of your annual crypto transactions is tedious but not impossible. A good crypto tax expert can help you obtain accurate records of all your transactions before they begin the tax calculation.
4. What Kind of Tax am I Liable to Pay on My Cryptocurrency?
Cryptocurrency is taxed based on your capital gains or losses. Simply put, your tax liability is calculated based on the change in the value of your holding over the last year. If the value of your holding increases – it is a capital gain, and you have to pay taxes on it. Talk to your crypto tax accountant to understand your capital gain on your crypto holding in the last year and the corresponding tax.
5. If I Haven't Been Reporting My Crypto Investment in My Tax Returns for Several Years, What Can I Do About it Now?
Governments worldwide are devising new laws and norms around cryptocurrency and taxation for it. If you have been evading taxes on crypto gains for the past few years, it is not possible to do that anymore. Work with your crypto tax accountant to compile all your transactions and create an accurate record. File an amended return that includes all your crypto transactions in the past three years.
6. Do Any of My Crypto Transactions Trigger Income Tax?
Those who receive payments for services in virtual currency should disclose the amount as income in their tax return declaration. Some examples of such crypto transactions include receiving income in cryptocurrency or earning it through mining.
7. Some Part of My Salary is Paid to Me in Bitcoin. How Do I Report This Income, Given That the Price of Crypto Keeps Fluctuating?
The general rule of thumb is that the cryptocurrency's fair market value on the date you received your salary will be added to your gross income. The income tax will be calculated on your gross income and thus determined. Keep in mind that you must have an accurate and reliable record of the date of receipt of your salary in such a case.
8. I am Mining Cryptocurrency. Do I Have to Pay Self-Employment Tax? What Expenses Can I Deduct When I Report My Taxable Income?
Taxation on mining cryptocurrency depends on the nature of the mining activity. For example, if you are mining cryptocurrency in the capacity of an employee, then you don't have to pay tax – your employer will pay. However, if you are mining cryptocurrency in your own name or in the name of an organization you own, you are considered self-employed and have to pay taxes.
9. What If I Haven't Maintained Accurate Records of My Crypto Transactions? What Can I Do to Remedy the Situation Now?
If you haven't maintained accurate records of your crypto transactions, you can try using crypto tax software available online. If there are any discrepancies, your crypto tax accountant can help you make an estimate to use in your tax returns.
10. Do I Have to Pay Taxes on My Crypto Even if I Don't Receive Tax Forms from My Exchange?
Virtual currencies are treated as property. Any gains or losses on your cryptocurrency should be reported. On-chain and off-chain transactions fall under this treatment, even if the currency is transferred through local wallets.
11. My Exchange Marked Crypto I Transferred to Myself as Taxable. What Should I Do?
If you often transfer crypto between your multiple wallets or accounts. Some exchanges treat these transfers as transactions and mark them taxable. It is best to keep a diligent record of the transfers and transactions throughout the year. Mark transfers to yourself to ensure accuracy. Talk to your crypto tax accountant to find out how you can do it.
12. If I Bought Crypto with Another Crypto, is it a Taxable Event?
Whenever you buy a cryptocurrency using another crypto, you must disclose the fair market value in your national currency for your taxes. The fair market value is the difference between the fundamental value and the sale amount. Use an app to keep track of your sales and purchases of cryptocurrency.
13. Is the Crypto That I Received Through Staking or Forking Taxable?
If you have received crypto through staking or forking, you must report it as an income. You will need to pay taxes based on the fair market value of the crypto received.
Author Bio:
Akanksha Malik is a content creator & digital strategist at Mesha. She develops content to share her knowledge and insights helping her readers stay updated with the latest in the fintech world, as well as Web3 businesses, cryptocurrencies and other business trends or opportunities. Akanksha also loves exploring architectural sites and different local dishes during her travels.