At its core, cryptocurrencies are square pegs being forced into the existing round holes of traditional finance and accounting. With guiding crypto tax standards thus far and with and other organizations helping guide crypto accounting, the conversation around crypto thus far has centered around treating it like other traditional assets under standard accounting protocols. While this may work for a new kind of traditional asset, cryptocurrencies are inherently a new asset class with different operational structures.

The potential challenges arising are obvious. How do you fit an entirely novel asset class into tax & accounting rules built for traditional assets? Well, this necessitates some way to translate cryptocurrencies into traditional formats 鈥� to fit the square peg of crypto into the round holes that make up modern traditional finance. In other words, financial tools are needed to bridge the gap between crypto and traditional finance.

New tools needed

While there are already such software tools emerging that could greatly aid in the translation of digital assets into more traditional financial accounting frameworks, there are certain components that are critical for this to happen successfully. A few key ways this needs to be accomplished include:

Aggregation 鈥� First, the data needs to be gathered and collected. Cryptocurrencies present an immense amount of data, most of it unstandardized and unclassified. In order to even begin working on making everything fit together nicely, we need to mold it into a form we can use in the first place, even if that ends up being a square peg.

Aggregating data, and finding a software provider to do so, is a significant hurdle that many financial institutions and tax & accounting firms need to overcome in order to package crypto up into a nice little square box.

For more on the status of crypto regulation worldwide, check out聽the full digital version of the聽Cryptos on the Rise 2022聽report from 成人VR视频 Institute and 成人VR视频 Regulatory Intelligence

Normalization 鈥擴nstandardized, unclassified, abnormal 鈥� these words could describe my sleep patterns around the tax deadline 鈥� but they also accurately describe much of the overall trove of crypto data. Normalizing crypto data means standardizing the naming conventions, properly categorizing transactions, as well as establishing standards around tax issues such as a cost-basis, fair value, and more.

There is a plethora of companies that jumped through numerous logistical and categorical hoops simply to help standardize small bits of cryptocurrency. And while this clearly demonstrates that this is a big challenge, both in the size of data and in the size of 聽transactions, it also shows the great need for robust standardization of .

Legibility 鈥� Finally, the last step in the process is legibility, or, making crypto data understandable and readable to general ledger tax & . This means building the final bit of the bridge, allowing crypto data to flow from buy-side to sell-side to better enable the closing of books with ease.

Everything we鈥檝e just discussed at a birds鈥� eye view encompasses billions to trillions of dollars of business investment to solve these challenges. The private sector is racing to create solutions for tax & accounting professionals to allow crypto, at the end of the day, to be handled like any other asset.

For crypto natives, this is great news. While many in the crypto sphere want to subvert traditional finance, it鈥檚 a lofty goal that likely will only occur through traditional pathways. Ensuring cryptos inevitable adoption means allowing tax professionals and accountants to be able to handle it just like they would other securities and assets, such as bonds and stocks.

So, all it takes to fit the square peg of crypto into the round hole of traditional finance is a little pushing, shoving, shaping, and molding with the aid of , and like magic crypto tax & accounting could become as easy as ever.

You can learn more about here

And perhaps, a little too easy.

In most modern economies, anytime a new asset class presents any level of traction, it can be expected that regulation will follow shortly behind. With crypto, however, while the IRS and other agencies were quick to claim that taxpayers and businesses needed to pay regular capital gains tax on their crypto earnings, concrete regulation on digital assets has not evolved as quickly.

However, all of that鈥檚 changing.

Regulation on the horizon

The cryptocurrency bull run of 2020 and 2021 brought crypto even further into the limelight and marked the most significant shift in the asset class鈥檚 history towards mass institutional and governmental adoption of certain digital assets. As with any unregulated financial ecosystem, however, it also brought bad actors, , scams, and plenty of other stories of financial misdeeds.

As financial leaders now realize and accept that digital currencies are here to stay, regulation is being built and is soon to follow.

In the US, right now the IRS regulation that guides how to process crypto returns is primarily , along with an posted by the IRS. To say that these documents and standards are 鈥渋ncomplete鈥� would be an understatement. This lack of clear guidance has left many crypto financial experts to release on the most appropriate way to treat digital assets during the tax filing process.

As financial leaders now realize and accept that digital currencies are here to stay, regulation is being built and is soon to follow.

While working around the IRS鈥檚 sparse guidance for filing crypto taxes, regulation is on the horizon that will clarify certain filing requirements. For example, the passed in November 2021 set in motion the process of further regulating digital assets. The Inflation Reduction Act, passed just a few months ago, established significant funding for the IRS to address .

There鈥檚 even regulation coming to better facilitate tax information reporting, traditionally done through the issuance of 1099 forms. Now, crypto exchanges will need to issue a customize 1099 form that is specially tailored to digital assets, the 1099 Form-DA (for Digital Assets). Further, since April, there have been a total of three bills introduced to Congress that further address regulation on cryptocurrency and digital assets.

What does this mean for tax & accounting professionals?

All this talk of regulation and subsequent action surrounding cryptocurrencies means that now is the time for tax & accounting professionals to start incorporating digital asset workflows into their tax & accounting systems and practices. Or at the very minimum, they need to expand their around digital assets, to the same extent they would for other more traditional assets.

No regulation currently proposed or even hinted at presents the possibility of crypto being destroyed or banned through regulation. And with institutional adoption of digital assets growing, such punitive action is unlikely. Indeed, the world鈥檚 financial leaders have become crypto bulls just as much as retail investors.

All this means that bridging the gap between crypto and traditional finance is an ever-growing need for anyone involved in this industry. Yet, alongside this need is another, one for tax & accounting professionals who are willing and able to rise to the challenge that this new asset class presents.

So, what does regulation in crypto mean for tax & accounting professionals? It means it鈥檚 time for them to get in that continuing education mindset and ensure that their practice, firm, or business is and the intricacies that these cutting-edge assets present to investors.

For more on the status of crypto regulation worldwide, check out the full digital version of the Cryptos on the Rise 2022聽report from 成人VR视频 Institute and 成人VR视频 Regulatory Intelligence

So naturally, the IRS wants its cut.

To avoid any IRS headaches, crypto hobbyists and professionals alike will need to be much more transparent about their crypto dealings when filing their 2021 taxes. And for some, accounting for a year鈥檚 worth of crypto exuberance may present some unexpected difficulties.

What鈥檚 taxable?

Crypto transactions can qualify as 鈥渢axable events鈥� in several ways, depending on the nature of the transaction.

In general, the IRS treats crypto assets like stocks, bonds, or property, which means they aren鈥檛 taxable until one sells or uses them. Normal capital gains taxes could apply to such transactions 鈥� short-term capital gains taxes if the crypto asset was owned for less than a year; and long-term capital gains taxes if it was owned for more than a year. But if all an investor did was buy some Bitcoin and hold onto it, there is no need to report it to the IRS.

However, a rude surprise may await those who got swept up in last year鈥檚 meme-stock mania and spent a lot of their pandemic lock-down time trying to game the volatility of the crypto market by buying and selling many different cryptocurrencies in a short time frame 鈥� because yes, the IRS thinks of each one of those transactions as a taxable event.

Looking for more information about cryptocurrencies and their regulation? You can download 成人VR视频’ new Cryptos on the Rise 2022 report here.

Further, crypto exchanges aren鈥檛 yet required to provide their users with tax documents. That means it is the responsibility of individual crypto owners or their CPAs to keep track of all the gains and losses that their feverish crypto activity generated, including how long each crypto purchase was held, its fair market value when it was bought and sold, and any fees that may be associated with the transaction.

Some of the more popular exchanges 鈥� such as Coinbase, Bisq, or public.com 鈥� do provide users with a consolidated 1099 tax form and make it possible for users to download their transaction history, but many more don鈥檛. And even if they do, individual owners will still have to calculate gains and losses based on the price of the crypto asset when it was bought and sold.

Crypto鈥檚 trickier side

Crypto assets can be used in many different ways, and this is where it gets a bit trickier. For example, crypto assets can be used to pay for products and services; traded for other cryptocurrencies; to pay (or receive payment) for non-fungible tokens (NFTs); to invest in start-up businesses; or even be mined, which means earning crypto by participating in its underlying blockchain authentication process.

In the eyes of the IRS, any time crypto is used as a medium of exchange, it becomes taxable. Precisely how it is taxed, however, depends on the nature of the transaction and the value of the taxpayer鈥檚 capital gains or losses.

For example, if someone pays for a good or service with crypto, and profits from the difference in price between the good or service and the purchase price of the crypto, then the profit is reported as ordinary income. Mined crypto earnings are also taxed as income. However, if one sells or trades crypto, any profits are taxed as capital gains, just as if they were selling a stock. Likewise, an individual can write off up to $3,000 worth of crypto losses, and carry forward any additional losses to offset gains in the future.

Forks

Cryptos also have their own version of a stock split, called a 鈥渇ork.鈥� There are hard forks and soft forks, and potential tax consequences for each.

A soft fork can be thought of as a brand extension, as when Bitcoin soft-forked into Bitcoin Gold, Diamond, Private, etc. But the tax consequences of a soft fork are typically neutral, because the overall value of an investor鈥檚 assets after the fork stay the same.

On the other hand, a hard fork is when an entirely new cryptocurrency is created, and its value appreciates or depreciates in a separate blockchain from the original crypto. Again, as long as the overall value of an investor鈥檚 assets remain the same, there are no tax consequences. But new tokens from a hard fork are often given to investors as a gift or what鈥檚 known as an 鈥渁irdrop,鈥� and the value of these additional assets are taxable as a capital gain.

NFTs

NFTs are another digital asset that may or may not interest the IRS. Unlike fungible tokens such as Bitcoin and Ethereum, NFTs are one-of-a-kind tokens that can鈥檛 be duplicated. At the moment, NFTs are being used mostly by artists and musicians to ensure the authenticity of a work through its unique blockchain. And for investors who buy them, an NFT鈥檚 value is directly linked to its uniqueness.

For most NFT transactions, however, taxation isn鈥檛 complicated. Basically, if someone creates or purchases an NFT, then sells or trades it, any profits will be subject to capital gains tax. If crypto is used to purchase an NFT (and it usually is), the buyer is essentially cashing out their crypto to make the purchase, and is taxed accordingly.

Growing interest in crypto

Although tax law for crypto is still evolving and will likely continue to do so, the IRS has issued a fairly extensive list of to answer most questions pertaining to the 2022 tax year. For individuals who have done even a modest amount of crypto trading, however, the ins and outs of evolving crypto tax law might appear daunting.

CPAs should be aware of this opportunity. Certainly, CPAs with a deeper understanding of crypto can use this time to differentiate themselves in the minds of crypto traders. Amateur traders, those trading crypto professionally, or even those building a business based around crypto鈥攁ll could likely use professional help in the weeks and years to come.

The report probes new areas of global regulatory emphasis such as central bank digital currencies (CBDCs), non-fungible tokens (NFTs), stablecoins, decentralized autonomous organizations (DAOs), crypto-advertising, and financial crime.

The report also contains , which offers a country-by-country overview of the rapidly developing regulatory and legal framework for cryptos. The compendium includes approximately 70 important countries, their regulatory approach or stance on cryptos, general tax status along with links to valuable information such as the pertinent regulatory bodies or enacted regulations.

You can see the full digital version of the Cryptos on the Rise 2022 report here

The tremendous growth of cryptos, now estimated to be near $3 trillion in total market capitalization, is also examined. Such growth in popularity and size means that crypto-assets are now presenting new risks, such as disruption of traditional financial services and growing concerns about potential threats to global financial stability. Other, less macro-risks include the need to protect vulnerable customers, market manipulation, fraud, anti-money-laundering concerns, and cybersecurity, all of which will also need to be addressed. The increasing regulatory challenges are exacerbated by the growing public awareness, acceptance and use of cryptos.

Indeed, this perceived threat to financial stability is being considered by supranational policymakers with the identification, monitoring, and management of risks continuing to concern and on occasion confound regulators and firms alike. The challenges include operational and financial integrity risks from crypto-asset exchanges and wallets, investor protection, and inadequate reserves and inaccurate disclosure for some stablecoins. Moreover, in emerging markets and developing economies, the advent of crypto can accelerate what the International Monetary Fund has called cryptoization 鈥� which occurs when these crypto-assets replace domestic currency and circumvent exchange restrictions and capital account management measures. In other words, creating a situation that could have a potentially profound impact on financial stability.

Although outright bans on cryptos around the globe are somewhat rare and are diminishing, some jurisdictions are emerging as staunch advocates. Many regions, however, fall somewhere in the middle as regulations are slow to keep pace with the immense popularity of cryptos 鈥� a risk, in and of itself.

In many countries, cryptos appear to be at a legal and regulatory tipping point, the report shows. Concerns about financial stability and vulnerable customers, together with the apparently persistent misperceptions about financial crime, are driving policymakers to consider significant action. Policymakers must, however, balance these considerations with the benefits which could be derived from the more widespread adoption of cryptos.

Some countries, meanwhile, are welcoming cryptos with seemingly few regulatory concerns. Cryptos’ borderless nature makes this even more challenging, as is evidenced by the near-overnight relocation of miners and crypto-firms out of China after that country clamped down on crypto activity. Most jurisdictions are reluctant to stifle innovation, but it would be politically unacceptable to deliberately risk either wholesale financial stability or widespread retail customer detriment.

The clear message from the report is that there is an urgent need for a coherent, comprehensive, and global approach to the regulation and oversight of cryptos. The need for policymaking pre-emption and cooperation is seen as increasingly urgent as crypto-assets 鈥� which for now only accounts for a small portion of overall financial system assets 鈥� continues to grow rapidly. Further, direct connections between crypto-assets and systemically important financial institutions and core financial markets are rapidly evolving, opening the door to the potential for regulatory gaps, market fragmentation, or arbitrage.

Without a coherent international approach to cryptos there is a danger that they will fail to achieve their potential, and the world will lose the considerable benefits they could bring.

The special report will be featured at several upcoming conferences as well as on the Compliance Clarified podcast which is available on , , and .

However, the speed and reach of such transactions 鈥� together with the potential for anonymous activity and for transactions without financial intermediaries 鈥� also make crypto-assets vulnerable to misuse and raise the risk of money laundering. Financial services firms, regulators and policymakers are all having to come to terms with the rise of a new class of product as well.

You can download the full report from 成人VR视频 Regulatory Intelligence here.

To look further at this evolving dynamic, the 成人VR视频 Institute and 成人VR视频 Regulatory Intelligence have created a new , which examines some of these developments as well as the risks and benefits of this next iteration of digital transformation.

The report also considers the problems arising from the lack of an internationally consistent definition of the term crypto, and the implications for financial services firms and their customers of a possible 鈥渁rms race鈥� among central banks as they seek to deploy their own digital currencies.

You can also access the new that shows the regulatory environment in countries around the world.

Further, the report notes the emergence of bitcoin as a mainstream financial instrument and assesses how that status has changed the risk profile in regard to money laundering and other misuse of cryptocurrencies for illicit or illegal activities. Indeed, cyber-risk is a concern for all cryptos, and the report looks at how firms, regulators, and exchanges can enhance their cyber-resilience.

In addition to the full report, a compendium that provides an and a global heat map (above) that displays the regulatory environment around the world are included and provide valuable information about the legality, tax treatment, and evolving regulatory framework on a country-by-country basis for more than 60 jurisdictions. A version of this compendium was first published by 成人VR视频 in October 2017.

You can access the 成人VR视频 Regulatory Intelligence Compliance Clarified podcast episode devoted to cryptos here, via 听辞谤 .