Tax & AccountingJanuary 16, 2023

How to prepare your clients for crypto tax planning

As a vendor in the CCH Axcess Marketplace, Ledgible provides Ledgible Crypto Tax Pro software, a professional-first crypto tax platform that integrates with CCH Axcess Tax. CCH Axcess Tax customers can easily import Gain/Loss information from Ledgible to make crypto tax reporting easier. 

Cryptocurrency is quickly becoming a more widespread form of payment and investment, and as such, it’s important to have a good understanding of how crypto tax planning works. It’s also essential to understand the key questions to ask clients when having a crypto tax planning conversation. 

In this blog post, we’ll cover the basics of what crypto tax planning is, why tax professionals and accountants should care about it, and provide some tips on talking with clients about their cryptocurrency activities.

What is crypto tax planning?

Crypto tax planning is the process of ensuring that any investments or trades made in cryptocurrency are reported correctly on taxes and that any applicable taxes are paid in full. It’s important to note that while there are many similarities between traditional investments and cryptocurrency investments from a taxation standpoint, there are also some distinct differences. 

Therefore, it’s important to understand the similarities and differences before engaging in crypto tax planning conversations with clients.

Why should accountants and tax professionals care about crypto tax planning?

From an accounting perspective, it’s essential to be aware of the ever-changing regulations surrounding cryptocurrency transactions. As cryptocurrencies become more widely used for investing and trading, the IRS has begun cracking down on those who don’t properly report income from these transactions. 

Furthermore, if someone fails to report their income from cryptocurrency transactions accurately, they could face serious penalties from the IRS. As a result, it’s important for any accountant handling a client’s finances to be knowledgeable about all aspects of crypto taxation in order to ensure that clients are compliant with all applicable laws and regulations.

Key questions to ask your clients in a tax planning conversation

When speaking with a client about their crypto tax planning needs, there are several key questions to keep in mind throughout the conversation: 

  • Do they have any crypto? 
  • Did they include crypto on prior year returns?
  • How active with crypto have they been this tax year? 

Asking these questions during the initial consultation provides a more accurate picture of their current situation. Armed with this information, it’s easier to develop an effective strategy for how to handle issues such as crypto-related capital gains when filing tax returns. Additionally, asking these questions ahead of time helps to avoid costly errors later on down the line.

Ledgible Tax Pro makes tax preparation easier than ever. Inviting clients to connect with Exchanges and Wallets makes the process of collecting information and analyzing it for taxable transactions quick and simple. This organized data is even sorted by cryptocurrency, so there’s no need to worry about spending hours poring over an assortment of figures. Working with Ledgible Tax Pro means no more stressing out during tax season about crypto!

Tips for talking about crypto with your clients

Consider prior year’s crypto activity. It’s important when discussing cryptocurrency with clients that you take into account not only their activity for this year but also activity from previous years. This will help ensure that all filing requirements have been met correctly in both years to avoid penalties or interest charges due to non-compliance. 

Discuss reporting requirements. Make sure clients understand the reporting requirements associated with each cryptocurrency they own or trade so they can accurately disclose all taxable events related to those currencies on their returns. 

Review tax implications. Explain the different tax implications associated with short-term versus long-term cryptocurrency capital gains and/or losses caused by trading activities so they can make informed decisions regarding their overall financial strategy going forward.

Develop a tax planning playbook. The importance of developing an effective tax planning playbook cannot be overstated; proper preparation will help ensure that everyone remains compliant with all applicable laws while minimizing potential liabilities associated with incorrect reporting of taxable events related to cryptocurrency transactions or investments. 

Being proactive about understanding how best to manage the client’s crypto holdings will benefit everyone involved in the process going forward. Following the tips outlined above helps to ensure that both the accountant and the client’s finances remain safe from potential penalties or other legal issues associated with improper reporting of crypto activity on taxes.

Lorin Cantor, Director, Ledgible
Lorin Cantor

Lorin is a seasoned marketer with a focus on marketing partnerships across both B2B and B2C companies. Her career also includes 4+ years of experience in the fintech/investment banking industry.

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