Miscalculations, misunderstandings, missing data: Crypto tax accountants share woes
Some questions don't have answers. "How much tax do I owe?" shouldn't be one of them.
A recent survey (PDF) of cryptocurrency tax professionals by Blox has found that most cryptocurrency tax specialists share a very similar set of pain points, most of which originate on the client's side of the fence.
On the whole, between 8.7 out of 10 and 9.8 out of 10 respondents shared an identical set of pain points.
Missing or inaccurate data were near-universal issues, while 95% of respondents also said a lack of disclosure was a problem. On the bright side, only 87% said poor record-keeping practices were an issue.
Two connected issues were a lack of understanding over crypto/tax rules and the need for more government guidance, and miscalculations of profits and losses when analysing transactions using FIFO or FOFI methods.
This issue is quite well exemplified by current ATO community guidance, or the lack thereof, on the question of which method you should use to calculate your capital gains tax on crypto assets.
The issue at hand is that in Australia, cryptocurrency is treated as an investment asset, in that crypto transactions will typically incur capital gains tax (CGT), regardless of whether it's fiat to crypto, crypto to crypto or buying a T-shirt with crypto. To make it more confusing, the T-shirt example depends on whether you obtained the cryptocurrency for the purposes of purchasing said T-shirt or as an investment that was later redeemed in part for a T-shirt.
Capital gains tax taxes you on the difference between your buying price and your selling price, but unlike most investment assets, it's tough to separate cryptocurrency into distinct chunks.
If you buy a piece of art as an investment, then there's a distinct thing that you purchased at a specific price at a specific time, and then disposed of at an equally specific price and time.
But when you buy cryptocurrency, it will typically sit in your wallet as a collective blob.
If you buy some Bitcoin one day, buy a bit more at a different price on another day and then sell some of it, how much did you pay for the Bitcoin you just sold? According to the ATO, you're not allowed to just average the purchase price unless both purchases occurred on the same day.
This particular example would likely fall squarely under the "requires more government and institutional regulations and guidance" roadblock in the Blox survey, which seems to be a problem in the USA and Australia alike.
"While the IRS claims guidance is on its way, in the interim professionals, businesses and investors remain in the dark. The top three challenges match the top mistakes clients are making. This goes hand-in-hand with the issues of regulation and lack of enforcement," the report says.
Some questions don't have answers, but ideally "how much tax do I owe?" shouldn't be one of them.
Still, it's as good a reason as any to hire a cryptocurrency tax professional, just to pass the headache onto them.
Also watch
Disclosure: The author holds BNB and BTC at the time of writing.
Latest cryptocurrency news
- Coinbase IPO: How investors can get in before it lists
- Crypto market dives but Ethereum’s price remains strong – here’s why
- Ethereum breaks new record price and looks set to go higher
- Ethereum price soars on the heels of Visa’s crypto announcement
- PayPal launches cryptocurrency payments sending Bitcoin’s price soaring
Picture: Shutterstock
