While the landscape for crypto investments is still in its infancy, its potential has led the world’s leading accounting firms to explore ways to implement the emerging technology in their work. The latest is Ernst & Young LLP which has unveiled a Tax Calculator solution to tackle a surge in tax audits that have targeted individuals trading cryptocurrency.
The move aims to resolve the tax dilemma since it produces a variety of tax filing formats that the IRS often requires. The solution is the latest addition to the EY Blockchain Analyzer product suite which automatically calculates capital gains for various cryptocurrency transactions.
The reporting obligations for cryptocurrency in the US continue to evolve at a breakneck pace, often lacking clear guidance from regulatory authorities. Most notably, the Internal Revenue Service has added a question to the standard 1040 form, America’s primary income tax form. The compliance measure comes in the form of a checkbox and asks taxpayers to disclose if they have ever dealt in cryptocurrencies in 2020.
“The Tax Calculator addresses evolving needs as the crypto landscape continues to build momentum, making the effective management of crypto taxes essential. Individuals can use the Tax Calculator to streamline and automate their crypto tax processes in one centralized location,” said Michael Meisler, EY Americas Cryptocurrency Tax Center of Excellence Leader.
Regulator Gets Tough on Crypto Taxes
EY Tax Calculator should address the reporting needs of the cryptocurrency customers in the tax season, which kicked off in January. As such, accounting professionals servicing crypto-transacting clients will have sources required when reconciling cryptocurrency balances and transactions.
Recently, there have been numerous reports emerging from tax authorities clamping down and going after traders under-reporting their cryptocurrency profits. The IRS also sent letters to taxpayers who might have failed to report income and pay the resulting tax from cryptocurrency transactions.
At the very core, the IRS still deems crypto assets to be property rather than currency for income tax purposes, the same as its regulatory guidance that came out five years ago. That means the authority will continue to tax crypto profits and losses like those for stocks, at capital gains rates.
“Looking ahead in 2021, EY teams will continue to explore expanding the Tax Calculator beyond the US, providing individuals with a centralized management technology to simplify the challenges associated with crypto tax. Developing an expanding set of tax capabilities to support both individuals and enterprises is a key component of the EY strategy to assist clients with business transactions, including cryptocurrency activities on enterprise blockchains,” added Paul Brody, EY Global Blockchain Leader.