As investing in crypto remains complicated, are accounting firms ready for the tax implications?

Bitcoin and other cryptocurrencies have lost more than half their value in recent months, falling from a market cap of $2.9 trillion to $870 billion, sparking renewed calls for regulators to do more to protect consumers from volatility in the market.

And with new regulations expected to be implemented in October, tax season is likely to get more complicated for crypto investors.

“It is very difficult for a consumer to manage their own position in the central crypto market with current tools,” Harvard Business School professor Scott Duke Kominer told the Harvard Gazette in a story published on July 18.

But just because crypto has experienced huge losses recently, it doesn’t mean that the virtual currency will disappear.

The global cryptocurrency user base grew by nearly 190% between 2018 and 2020, accelerating further in 2021 when El Salvador became the first country in the world to accept Bitcoin as legal tender, according to Statista.

While many are still not invested in crypto, they are becoming increasingly familiar with the industry. By 2021, 18% of the US population had never heard of it, down from 21% in 2019, according to Statista.

The public’s increased familiarity with crypto is probably a result of the price increases Bitcoin BTC/USD early 2021, Tesla Inc.‘s TSLA growing engagement in crypto and PayPal Holdings Inc. PYPL enables the purchase of virtual currencies using a PayPal wallet.

Counting taxes

Transactions with virtual currency such as BTC or Ethereum ETH/USD are taxable just like transactions in any other property.

Crypto transactions have so many nuances that it is important to have software to track them. But even if everything is recorded on the blockchain, extracting data for accounting purposes is not as easy as it might seem.

Accountants and tax professionals can reportedly simplify crypto bookkeeping using software such as QuickBooks, Xero Ltd. XRO as their ledger and Ledgible as their subledger, which integrates with Quickbooks, Xero and all other accounting software.

As an example, financial institutions, corporations and accounting firms use the Ledgible platform for tax, accounting and 1099 generation for billions of dollars of crypto assets.

Atlanta-based Ledgible has two core business lines – professional tax and corporate accounting.

The company’s tax practice focuses on the professional market, including accounting firms, authorized auditors, tax advisors and the customers who use these services. Ledgible has reported that firms can connect their clients’ portfolios and automatically calculate gains and losses to properly report crypto transactions.

The accounting practice serves businesses, companies that hold crypto, and banks and institutions that handle crypto. The Ledgible Crypto Enterprise Accounting application is intended to streamline cryptocurrency and digital asset accounting for businesses and institutions.

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Featured image by Pierre Borthiry on Unsplash