Cryptocurrencies are treated differently than standard assets, which, when combined with the limited CPA resources with extensive knowledge on cryptocurrency taxation, result in a stressful tax season.
The current framework is complex to navigate since the IRS treats cryptocurrencies like Bitcoin (BTC) and nonfungible tokens (NFTs) differently from other assets, classifying them as property. Since different rules apply, investors often require the help of a professional or proper crypto tax software to record this activity correctly.
Other rules add complexity to the management process by suggesting that the use of fiat currency (dollars) to purchase assets in 2021 doesn’t require an indication on a tax report at the time of writing.
But, selling or exchanging the same virtual currencies does require a report. Therefore, for those doing a lot of trading or holding many different currencies, the sheer number of data that must be navigated through can add to the complexity.
While in previous years, leveraging a tax professional has been an option to help with some of the more complex nuances associated with tax management, the last year has been marked by a great resignation of tax professionals. With more reports of burnout and overtime hours caused by the COVID-19 pandemic, investors are often left on their own when it comes time to calculate taxes accrued.