As many accounting and tax professionals know, cryptocurrency has caused a wave of confusion. There are a lot of questions surrounding what exactly it is, how it works, and most importantly how to report it on your tax return. The answer from a taxability stand point has been highly debated for years. With the passage of the Tax Cuts and Jobs Act that went into effect on January 1, 2018, we now have more guidance.
The current I.R.S. guidelines treat cryptocurrency as property rather than currency, which resulted in some crypto traders and accountants taking a bold approach when reporting taxable gains in the past. These risk takers applied the use of Section 1031, treating crypto-to-crypto trades as a “like-kind exchange,” causing these taxable gains to be deferred. This loophole effectively made these transactions tax-free for the year in which the trades occurred. However, the Tax Cuts and Jobs Act sought to close that loophole. Now like-kind exchanges only apply to real-estate transactions, which means crypto-to-crypto trades will have to be treated as taxable events and reported accordingly.
Adding to the confusion is the fact that many investors have a lot of money on the line. In 2017, the price of Bitcoin rose more than 1,500%, an unprecedented gain. These tremendous gains for crypto traders created a major opportunity for accounting professionals that understood cryptocurrency. Why? Many individual crypto traders and investors are millennials whose previous tax returns were extremely simple. However, after investing in cryptocurrency, some were suddenly unsure of whom they could turn to in order to be sure that their investments and trades were reported properly—let alone figure out just how much they owed from their gains. As a result, the demand for cryptocurrency tax specialists has continued to grow.
For those accounting professionals who are highly specialized in cryptocurrency, many are able to set their own rates since the demand for their skills is so high. As a result, cryptocurrency tax specialists should make sure that their compensation matches their true market value. If you’re not sure where to start, it never hurts to meet with a recruiter who works in the accounting and finance industry. They should have a strong understanding about the value of your skillset in the current job market.
Additionally, we recommend that those who are interested in pursuing cryptocurrency opportunities stay up-to-date, as the information can change quickly. In addition to the Section 1031 change in the Tax Cuts and Jobs Act, for example, there is a lot more to catch up on in this new law. As a tax professional, it is critical to understand all of the changes that have gone into effect—and employers are looking for experts who will be able to help guide their clients through these changes.
Additionally, the classification of cryptocurrency is still being decided worldwide, so professionals must be sure to pay close attention to the discussions. There have been ongoing congressional and SEC hearings to determine how to classify cryptocurrencies. Earlier this year, the SEC decided that Bitcoin and ether are not securities. This was a landmark ruling, but there are still thousands of other cryptocurrencies currently on the market. The more up-to-date you are on these issues, the more employers will trust your expertise.