{"id":26400,"date":"2022-09-14T08:00:12","date_gmt":"2022-09-14T13:00:12","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=26400"},"modified":"2022-11-10T15:59:04","modified_gmt":"2022-11-10T21:59:04","slug":"common-crypto-tax-problems-and-how-your-clients-can-avoid-them","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/common-crypto-tax-problems-and-how-your-clients-can-avoid-them\/","title":{"rendered":"5 common crypto tax problems and how your clients can avoid them"},"content":{"rendered":"<p>Even if you haven\u2019t yet worked with a client with <a href=\"https:\/\/accountants.intuit.com\/taxprocenter\/tag\/crypto\/\"title=\"\"  target=\"_blank\" rel=\"false noopener\">crypto<\/a> holdings, you\u2019ve probably heard horror stories about confusing technology, nebulous tax treatments, and scores of missing or inscrutable records. With the right crypto tax software, a lot of these challenges can be overcome, but there are still several common situations that can sidetrack the <a href=\"https:\/\/tokentax.co\/blog\/how-to-report-cryptocurrency-on-taxes\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">crypto tax preparation<\/a> process.<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<p>Here are some of the tax problems most frequently encountered by accountants working with crypto clients, along with recommendations for avoiding them.<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<h2>1. Your client can\u2019t remember all their wallets or trades<\/h2>\n<p>One of the biggest crypto tax headaches is when a client can\u2019t remember all of the platforms they\u2019ve traded on and wallets they\u2019ve used. This can cause incomplete filing, missing cost basis, and more labor for you as additional wallets are discovered piecemeal. If your client suspects wallets or transactions are missing from their records, contact a crypto tax firm that offers blockchain data analysis services. These crypto experts can help you locate all the relevant information.<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<p>To avoid these outcomes, ask your legacy clients to begin tracking their crypto taxes during the year. They can do this by using a crypto tax calculator to sync new wallets via API as they\u2019re acquired. Then, at the end of the tax year, they\u2019ll have a record of all their wallets and transactions ready for you.<\/p>\n<h2>2. Your client can\u2019t access their trade data<\/h2>\n<p>The most common reasons that crypto traders can\u2019t access their data from exchanges include:<\/p>\n<ul>\n<li>A platform shut down permanently.<\/li>\n<li>A platform is locked to users in certain countries.<\/li>\n<li>A platform only allows a certain number of transactions to be synced or exported at once.<\/li>\n<li>A platform&#8217;s representatives won\u2019t respond to requests for custom exports.<\/li>\n<\/ul>\n<p>Unfortunately, these problems don\u2019t have an easy fix. The best solution is for your clients to proactively track their crypto transactions. Encourage them to make it a habit to regularly record their trade history in their crypto tax software.<\/p>\n<h2>3. Your client used foreign exchanges<span class=\"Apple-converted-space\">&nbsp;<\/span><\/h2>\n<p>There hasn\u2019t been definitive guidance from the IRS about whether accounts on foreign-based crypto exchanges are considered foreign bank accounts. Some accountants may recommend filing a report&nbsp;of <a href=\"https:\/\/tokentax.co\/blog\/how-to-file-a-crypto-fbar\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">Foreign Bank and Financial Accounts<\/a> (FBAR)&nbsp;if, at any time of the year, the sum of a client\u2019s assets held on one or more foreign exchanges exceeds $10,000.<\/p>\n<p>If you agree with this more conservative approach, make sure to research where the exchanges used by your clients are based. For example, <a href=\"https:\/\/www.binance.com\/en\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">Binance<\/a> is headquartered in Malta and <a href=\"https:\/\/www.kucoin.com\/\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">KuCoin<\/a> is headquartered in Hong Kong. If you\u2019re using crypto tax software, you\u2019ll be able to generate a running total of funds in foreign accounts, so you\u2019ll know if it ever reaches the level that may require an FBAR.<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<p><a href=\"https:\/\/taxprocenter.proconnect.intuit.com\/tax-law-and-news\/decentralized-finance-defi-is-red-hot-but-what-are-the-tax-issues\/\"title=\"\"  target=\"_blank\" rel=\"false noopener\">Decentralized exchanges<\/a> don\u2019t have a fixed address, so it\u2019s unlikely that they need to be reported on an FBAR.&nbsp;<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<h2>4. Your client\u2019s DeFi trades aren\u2019t importing properly<\/h2>\n<p>If a trader used any <a href=\"https:\/\/tokentax.co\/blog\/defi-tax-guide\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">DeFi<\/a> or <a href=\"https:\/\/tokentax.co\/blog\/nft-tax-guide\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">non-fungible token<\/a> (NFT) platforms that aren\u2019t supported by their crypto tax calculator, that data may not be imported completely or accurately. For example, unsupported DeFi trades may not be recognized as taxable events until you manually edit them and classify them correctly.<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<p>If a client comes to you with trades from unsupported platforms, it may be extremely difficult and\/or time-consuming for you to clean and reconcile their data. For this reason, before agreeing to take on an engagement, confirm that your client\u2019s crypto tax software plan will be able to handle their data. If it won\u2019t, you and your client may need to discuss upgrading their software or bringing on additional support from crypto tax specialists.<\/p>\n<h2>5. Your client shared a wallet with others<\/h2>\n<p>Sometimes crypto traders will share a wallet; maybe they\u2019re family or friends, or working together on a project. This creates a messy crypto tax situation; crypto tax software has no way to know whose trades are whose, so reconciling the data requires a lot of human intervention.<\/p>\n<p>If crypto tax software can\u2019t tell whose trades are whose, the IRS can&#8217;t tell, either. This means that in a worst-case scenario, the IRS may decide a client is liable for taxes on all the trades in a shared wallet\u2014even if they know they didn\u2019t make them or profit from them.<span class=\"Apple-converted-space\">&nbsp;<\/span><\/p>\n<p><strong>Editor&#8217;s note:<\/strong> Check back often on the Intuit\u00ae Tax Pro Center for more content on <a href=\"https:\/\/accountants.intuit.com\/taxprocenter\/tag\/crypto\/\"title=\"\"  target=\"_blank\" rel=\"false noopener\">cryptocurrencies and tax<\/a>. A version of this article originally appeared on <a href=\"https:\/\/tokentax.co\/\" target=\"_blank\">https:\/\/tokentax.co<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Careful and consistent record-keeping is key to avoiding crypto tax headaches. Get 5 common problems and remedies from Arthur Teller, CPA.<\/p>\n","protected":false},"author":144649052,"featured_media":27166,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rkv_browse_by_id":0,"rkv_cta_id":0,"rkv_optimize_for_pagespeed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"useModifiedDate":false,"customPublishDate":"","_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[509474089],"tags":[646041827],"intuit_collection":[],"intuit_series":[],"coauthors":[646041864],"class_list":["post-26400","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-law-and-news","tag-crypto"],"header_image":"","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.6) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>5 Common Crypto Tax Problems to Avoid<\/title>\n<meta name=\"description\" content=\"From missing wallets to incomplete cost basis, these 5 crypto tax problems trip up preparers. 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Previously, he spent more than 12 years at KPMG, rising to the rank of managing director in the Tax Transformation and Technology practice. In this role, he led a team defining the vision and scope of KPMG's enterprise asset management tax application. Prior to this, Arthur worked as a manager in KPMG's Federal Real Estate Tax practice. Arthur is a licensed CPA in Illinois and California, as well as a member of AICPA. He earned a bachelor of science degree in accounting and a bachelor of arts degree in philosophy from the University of Southern California. Find Arthur on Twitter @tbharthur.\",\"url\":\"https:\\\/\\\/accountants.intuit.com\\\/taxprocenter\\\/author\\\/arthurtellertax\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"5 Common Crypto Tax Problems to Avoid","description":"From missing wallets to incomplete cost basis, these 5 crypto tax problems trip up preparers. 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