The IRS and the CRA have taken cryptocurrency accounts under their scrutiny. You must report your crypto assets for the taxation processes.
Since cryptocurrency is accountable for taxes, its bookkeeping and accounting have also gained significant attention.
At AkifCPA, filing your taxes is a daily routine for us. We understand the challenges you may face while keeping up with the crypto taxes. This article has listed a broad overview of Bitcoin accounting tips and challenges while maintaining it effectively for taxation processes.
Top Five Tips for Bitcoin Accounting
Maintain a Separate Bitcoin Transaction Record
This may seem very general, but it needs to be your top priority. Since the number of transactions happening daily is very high, you need to get a separate account to manage all your records in one place.
At the end of tax returns, going back and looking into the data will be very messy if you do NOT keep a separate account for your Bitcoin transaction records. The better scenario will be to have accounting software with you where you can maintain your data for all the transactions.
Calculate the Present Market Value of Your Transactions
If you’re selling, receiving, mining, staking, or receiving Bitcoin in any form, it is always advisable that you should calculate the real market value of the transaction/income.
For example, if you receive 1-Bitcoin in mining and the market value for the Bitcoin at the time you received was $30,000, you should note this price along with the date of the transaction as well.
Maintain Every Single Bitcoin Transaction/Income
The IRS and the CRA rules keep on changing with the changing dynamics of the crypto market. Since it is still a new market and keeps on fluctuating, the new rules for taxation will keep on changing as well.
Among these scenarios, it is always advisable that you should note all the Bitcoin transactions and Bitcoin income. You should not limit yourself to specific rules. Noting all your transactions can effectively save you from all the changing rules.
The Period of Holding Bitcoin Assets
Cryptocurrency taxes have variability into long-term capital gains and short-term capital gains. While maintaining your Bitcoin transaction records, you should note the holding period to calculate your taxes effectively.
Use an Automated Accounting Software
The automated software can reduce your hectic work of noting down every single transaction. Moreover, it serves you with better precisions and consumes less time as well.
Some of the popular software used in crypto accounting are as follows:
- Accointing
- Blockpit
- Blox
- CoinTracker
- CoinTracking
- Koinly
- ZenLedger
We have written a detailed article about crypto accounting software and explained each software in detail. Moreover, we have also listed different crypto accounting tax methods in the U.S.
General Issues While Maintaining Bitcoin Records
Since the crypto market is still new, we have gathered some issues you may face while maintaining Bitcoin accounting.
- Fluctuating Market: using the same metrics that we use for cash for accounting standards does not work with the crypto market; it keeps on changing and fluctuates a lot.
- Tangible Assets: in the U.S., all public companies are required to report their digital/intangible assets. Reporting your tangible assets on a cost basis is still very complex and challenging.
- Maintaining Losses & Gains: the routine rules of GAAP say that you can not add capital gains after your impairment loss. This creates confusion and mistrust for the common people who are interpreting the financials of a business.
You can also read about FASB updates on crypto accounting issues. Moreover, we have also listed details about different crypto tax accounting methods in the U.S.
Maintain Your Bitcoin Accounting Without any Confusion
The information may sound confusing, and it’s completely normal to think this way. However, we would strongly advise you NOT to file your taxes without understanding the legalities.
At AkifCPA, we have a professional background of many years in maintaining a record for your accounts and then reporting them for your taxes. We would love to save your money as well.
Get help today and file your taxes easily.
