Crypto bookkeeping is the systematic tracking, recording, and management of all cryptocurrency transactions taking place within a business or an individual’s personal investments. The accurate documentation of crypto-related activities is essential for filing taxes during the tax season. As the integration of cryptocurrencies in the financial sector increases, the demand for crypto bookkeeping services also advances since crypto is a digital asset that is considered property for taxing purposes.
How is Crypto Taxed?
There are two main ways in which crypto is taxed as a digital asset: capital gains and income tax. Since crypto is classified as property rather than currency, crypto taxation rules related to stocks and real estate apply.
Depending on how long you held the crypto before selling, the amount you owe as capital gains tax may vary. If you held a crypto asset for one year or less without selling, short-term capital gains are taxed at the same rate as your regular income, ranging from 10% to 37%. Crypto tax accountants advise holding a crypto asset for more than a year so that your taxes can be filed under long-term capital gains. This is because the rates are lower, ranging from 0% to 20% for long-term capital gains.
Crypto tax accountants record each and every transaction related to crypto for filing taxes. If cryptocurrency is received as payment, rewards, or mining income, each transaction should be recorded by a crypto bookkeeper to file under income tax.
Crypto tax accountants report the following under income tax:
- Payments for goods and services
- Mining rewards
- Staking income
- Airdropped tokens or bonuses
The main challenge that crypto tax accountants face with crypto bookkeeping for tax filing is that the taxable income depends on the fair market value of crypto at the time of receipt. Since crypto is a highly volatile digital asset, crypto bookkeepers have to evaluate and update records constantly.
Benefits of Crypto Bookkeeping for Businesses
When hiring crypto accounting services from a crypto accounting firm, it is essential to check whether crypto bookkeeping is provided by professional crypto CPAs. Crypto bookkeeping is an important crypto accounting service that is needed to maintain tax compliance while streamlining the financial management of your business.
Crypto bookkeepers track all your crypto transactions from purchases and sales to conversions and income. Crypto accounting services include the use of blockchain tools for simplifying this process with less risk of errors. When crypto bookkeepers maintain these records accurately, crypto tax accountants can file taxes on time and prevent penalties for non-compliance.
In addition, crypto bookkeeping is necessary to ensure that your business is ready in case of audits or inquiries from tax authorities. Plus, with crypto tax regulations and laws changing due to the evolving nature of digital assets in the financial landscape, hiring crypto bookkeepers who stay updated on these regulations strengthens your business’s position in the crypto world.
Crypto accounting services including tax planning and crypto bookkeeping not only ensure that your taxes are filed correctly. You can identify underperforming areas in your crypto portfolio and identify profitable areas for future investments with these detailed records. Furthermore, by monitoring all your crypto activities with the help of crypto tax accountants, you reduce the risk of unauthorized transactions and mismanagement.
The goal of using crypto accounting services instead of a general accounting team is to get specialized financial insights on how your business can perform with crypto in the future while minimizing tax liability. Without a doubt, investing in crypto accounting services is the best way to get all the benefits of crypto.
