How to Choose A Cryptocurrency Tax Accountant For Your Crypto Tax
Not sure where to find a crypto tax accountant?
That's probably because there are so few accountants and tax professionals who have developed their skills in crypto accounting. And it can be hard to distinguish a good crypto accountant from a bad one.
So what are you to do?
This article aims to clearly show you whether you even need an accountant specializing in crypto, whether it might be a good investment or a waste of money, and if is the right choice for you - where to find one.
Do you need an accountant for crypto?
Even though you might not have a clue how to do your own crypto tax, you might be surprised to learn that not everybody needs a crypto accountant.
Crypto accountants are a must if you are professional crypto trader, transacting with a trading crypto inside of a company, or you have hundreds of thousands to millions of dollars invested in crypto.
A good crypto accountant will be able to help you with tax planning, choosing the right entities for tax protection, as well as preparing and filing your tax forms. All of this should be able to save you substantially more on tax in the long run than the fees you pay to the accountants.
It also makes sure that you are compliant with any relevant tax laws to avoid surprise tax bills, or penalties and interest for misreporting.
But if you are just a hobbyist cryptocurrency trader who is dollar-cost-averaging into your favorite tokens on a centralized exchange, there are lower cost and more automated solutions to getting a crypto tax report.
Is hiring a cryptocurrency accountant worth it?
Hiring an accountant to do your crypto taxes is only worth it if it saves you time and money on your tax return, or keeps you in tax compliance.
This will depend on your overall tax picture, because your crypto activities are just piece of the puzzle. For example, take a crypto investor who just needs tax is a W-2 salary employee and just needs a basic tax return. It might not be worth hiring an accountant because they might not be able to save you more on tax than simply using a tax return preparation software like TurboTax.
But if you are a business owner with a complex crypto tax situation, rental properties, and other investments a competent tax advisor is a must. They will be able to provide crypto tax advice, business tax advice, and make sure you are complying with all tax laws and regulations. This should minimize tax so you save you far more than their fees. And if you are not a tax expert, this isn't something you can just do yourself.
What services do Cryptocurrency Tax Accountants offer?
Services of crypto tax firms include:
- Provide tax advice, planning & tax consulting to minimize your tax
- Entity formation to protect your crypto assets
- Ongoing reporting and tax requirements
- Prepare income tax and capital gains reports
- Reconcile your crypto tax report
Costs for a professional cryptocurrency tax accountant
The cost for normal accounting and tax services ranges from $150 to $400 per hour. But because cryptocurrency tax services are such a niche skill, crypto tax and accounting services tend to cost north of $500 per hour!
The cost will usually depend on your country of residence, as well as the seniority level of the accountant. The partner of a CPA firm is going to charge more than an accountant freshly out of university.
It also depends what services you need.
Tax planning sessions with a team of crypto tax professionals can cost $1000-5000 or more if you have a complex business structure. It might cost you another $300-1000 for ongoing quarterly reporting. And it is common for CPA firms to charge about $1000 for tax preparation.
In our experience, when it comes to crypto tax services, we find that it takes an hour for a crypto tax professional process about 25-100 crypto transactions. So you can use this as a way to estimate how much it might cost for your crypto tax preparation.
For example, if you have 1000 transactions to process this would take between 10-40 hours. The cost might range from $1500 to $20,000! For many people I know in the crypto space, the cost of this service would not justify the potential savings.
What alternatives are there to a crypto tax accountant?
If hiring a cryptocurrency tax expert does not seem like a good idea for you, there are alternatives.
For example, if you just earn a salary but need to report your crypto gains and losses you can use software to do it yourself. You could use one crypto tax software, which might cost from $99-500 per year to generate your crypto tax report. And then, you can use a software like TurboTax to complete and file your tax return. Turbotax ranges from free to $129 per year.
In total, doing it yourself might cost as little as $99 and a few hours of your time if you just had some basic crypto transactions on exchanges.
If your crypto trading history is more complicated, then you could hire a service like Crypto Tax Made Easy to process your transactions for you.
Unlike accountants who will charge an hourly rate as high as $500 to do the work, Crypto Tax Made Easy uses a combination of in-house software, automations, and a team of crypto tax experts to be able to fix your crypto tax report at often 20% the cost of accountants.
Do I even need to report crypto on taxes?
Many crypto investors think that crypto is anonymous. Unfortunately this is incorrect. The IRS and ATO announced in 2023 that they now have partnered with cryptocurrency tax and accounting software companies. This has given them advanced data matching capabilities so that they can tie your identity to your transactions.
Blockchains are a public ledger where all of your transactions can be viewed by anyone. Even though you might think your wallet address is anonymous, if you have ever sent funds to it from an exchange which has verified your identity, it is no longer anonymous.
Do crypto exchanges report to IRS?
Leading crypto exchanges all have KYC or "know your customer" requirements. In order for you to be able to put your dollars into a crypto exchange, you have to verify your identity.
The crypto exchanges want to remain compliant, and do report your transaction information to the IRS (or ATO in Australia). Unfortunately, any transactions you have done on these exchanges or in the wallets that were funded from these exchanges is subject to cryptocurrency taxation laws.
Do I need to give my crypto tax accountant data for past years?
If you have decided that you will use an accountant for your crypto tax needs, then it is important to give them data for your entire trading history. This can help you save on crypto tax in the long term, even if you don't plan to amend your past returns.
By providing your accountant with the full trading history, this makes sure that you have a cost basis for any tokens you have purchased to avoid overpaying on capital gains tax. It also ensures that if you have held tokens for longer than 12-months that you received a 50% capital gains tax discount.
If you work with a service like Crypto Tax Made Easy, we will automatically pull all of your crypto transaction data off of the blockchain for your full trading history. This will allow us to help you maximize your crypto tax savings.
How to Become A Crypto Accountant
If you are already an accountant and you would like to learn more about becoming a crypto accountant, we can teach you!
We have trained small-to-mid sized accounting firms about how to add crypto tax services to your firm's offerings.
We have also trained our own team of in-house accountants, and have a streamlined process for getting you up to speed in a matter of weeks.