Five Cryptocurrency Tax Tips That Will Make Your Accountant Sing

As the cryptocurrency ecosystem and use cases develop, even the best-laid plans for crypto taxes may prove elusive. Decentralized financial systems were in their infancy four years ago. Traders are now doing things like trading across blockchains, liquid stacking, yield farming, and more. 

Those who chooase to ride out volatile markets by buying and holding and averaging their purchases with smaller amounts more often aren’t immune to mockery from those who acquire non-fungible tokens. 

The accounting of the exchange crypto tax of every single transaction is infinite. Do you have any idea how difficult it is to keep tabs on cost basis for potentially thousands of daily transactions? 

Moreover, that’s on a personal level. I’ve seen businesses that process a million-plus in monthly sales. You may make your accountant very happy by following these five crypto tax best practices.

  1. Document every single financial exchange in minute detail

Sorry to break it to you, but the blockchain’s immutable recording system can’t be ignored. For many, the blockchain represents a self-recording, all-seeing system. Yes, this is true to some extent. However, unlike bank statements, which neatly record specifics like the names of the buyer and seller, together with the amount and date of the transaction, a blockchain does not provide such information.

When put into reality, blockchains are simply an immutable record of letters and numbers that can be seen using a block explorer like Etherscan, but the content isn’t user-friendly.

Simply cutting-and-pasting this information into a spreadsheet and sending it to your accountant is like expecting them to solve a “Da Vinci Code”-style puzzle.

  1. Just one single exchange should be used

Using a number of different exchangers may cause your accountant more work at tax time. The more varied your price data is, the more work your accountant will have to do. The two main causes for this are as follows. 

Firstly, your accountant is more likely to make mistakes when combining CSVs since each exchange uses a distinct format for its output. Second, this is a tedious, manual process that adds a lot of time to your billable hours. Everybody loses in this scenario.

  1. Practice clean coin handling

The ability of accountants to see transactions from the standpoint of a workflow makes good wallet hygiene crucial for both professional traders and average people.

It can seem convenient to have all your digital belongings in one place, but that’s not always the case. Always employ a consistent naming system and separate wallets for different types of transactions, such as investments, DeFi transactions, and income. Keep your mining earnings in a different wallet if you are a miner. You should divide your funds for secondary royalties and such items if you create NFTs.

  1. Maintain frequent communication with your accountant

Complexity in accounting arises from the need to keep track of transactions made on various exchanges, blockchains, and wallets and then properly report those transactions to a trusted third party, such as an accountant. You may lessen the likelihood of this happening by keeping in regular contact with your accountant.

  1. Automate whatever you can

The only two things certain in life are death and taxes, as the old adage goes. But unless we have definitive guidance from authorities, such cannot be said about exchange crypto tax.

The good news is that several options exist that operate seamlessly with various types of accounting software and electronic wallets; all you have to do is choose the one that suits your needs the best. 

Users will be able to link their cryptocurrency exchange of choice into the Binocs platform in order to compute their cryptocurrency-related taxes. This includes Binance, BitBNS, and any other cryptocurrency exchange. Check more on Latestdigitech.