Last Updated: August 25, 2020
The accounting profession has not seen any major innovation in decades. It’s somewhat disappointing to hear when accountants talk about “moving to the cloud” when other industries are actively working with truly disruptive technologies like Blockchain, Artificial Intelligence, Machine Learning, and Big Data.
Even though it may be impractical for sole practitioners and small to mid-sized firms to invest resources on new technologies, these new technologies provide clear strategic opportunities to provide value and increase monetization , particularly, blockchain. One such way is by providing tax services to clients with cryptocurrency transactions. Let me explain.
Growing Market with Big Revenue Potential
Cryptocurrency users in the US are increasing every day. Coinbase, the biggest cryptocurrency exchange in the country, currently has 30 million users; in the past 12 months Coinbase added 8 million new users. According to a survey conducted by the Global Blockchain Council, roughly 16 million Americans have invested in bitcoin. Since these users do not get a Form 1099-B which is typically issued by brokerage services, they almost always need a tax professional to file their taxes with the help of a coin tracking tool (more on this later).
Target Addressable Market (TAM) for tax practitioners is expected to grow in the long run as well. A Coinbase report finds that 56 percent of the top 50 universities in the world now offer at least one course on cryptocurrency or blockchain, a 25 percent increase from 2018. Consequently, Gen Z will be more comfortable with investing in crypto and transacting in crypto in day-to-day life; when they go into the workforce in the coming years this will create a new segment of clients needing crypto tax services.
Furthermore, IRS recently issued 10,000 tax notices to taxpayers with cryptocurrency transactions. These users are already looking for practitioners to help with IRS correspondence and successfully navigate the murky tax laws.
This great influx of new clients in both short and long terms is not something tax professionals should take lightly. Existing practitioners should learn about crypto taxation and new practitioners should actively go after these brand new breed of clients.
Stop Churn of Existing Clients
Generally, tax clients are very sticky; they value relationships with their CPAs. One major reason that tax practitioners are losing existing clients is not being able to serve them adequately. Not knowing crypto taxes turns out to be a significant contributor to customer churn. This will continue to rise in the coming years with the growing market and new tax laws entering into the system.
I personally have been fortunate enough to receive several high profile clients specifically because their prior CPAs did not know how to handle crypto portion of the taxes. On the bright side, these clients not only bring their crypto taxes to you. They also bring their businesses and other traditional work leading to high quality engagements and increased billings. In essence, knowing about crypto taxes will help you stop leakage of your established clients to more forward looking practitioners.
Relatively Less Complex (With the Right Tools)
If you are a seasoned practitioner, dealing with the tax laws related to cryptocurrency transactions is a relatively straightforward process. This is partly because IRS Notice 2014-21 is the only authoritative guidance IRS has issued so far on this subject. According to this notice, cryptocurrencies are treated as property and all general rules applicable to property applies to crypto transactions. Of course the laws are ambiguous and may be subject to different interpretations. However, as long as you are being conservative with your approach and follow best practices, you should be fine as a practitioner.
It's worth mentioning that one extremely complex aspect of being a crypto accountant is the actual calculation of gains & losses and tracking cost basis. This is an extremely time consuming, non value-added task if you were to do it yourself in an Excel spreadsheet; sometimes, it's virtually impossible to manually track the basis and calculate gains & losses accurately. Luckily, this problem is successfully solved by crypto tracking software like CoinTracker. CoinTracker can generate tax reports like Form 8949, Schedule D, etc. once the user connects crypto exchanges and wallets to a CoinTracker online account. Once these forms are generated, it’s just a simple process of including them on the tax return.
In summary, Accounting is a profession that has not been exposed to any significant innovation in decades; there is a lot of buzz about “cloud computing” but this is nothing new compared to what's happening in the tech world. If you are an existing practitioner or trying to build a new practice, I highly recommend looking into clients using cryptocurrency and helping them with taxes. This is one of the easiest ways to capitalize on blockchain technology and distinguish yourself as a proactive tax adviser.
Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.