Is Your Firm Ready for Cryptocurrency Accounting? Over the past few months, it seems like every conversation between accountants has turned to the subject of cryptocurrency. There was a time not that long ago when the only person in your office who knew about this radical new form of currency was the wild-eyed staff member who spent their off hours trading Bitcoin. In 2018, however, you need to be equipped for cryptocurrency accounting with clients making investments in the high-yielding markets. Whether Bitcoin is a flash in the pan or not, there’s no denying that cryptocurrencies of some form or another are going to be part of the accounting profession for years to come. Here’s what you need to know in order to position yourself on the cutting edge:
What Exactly is Cryptocurrency?
As you can probably guess from the name, cryptocurrency is a type of asset that functions much like traditional currency. The difference is that instead of being controlled through a central banking system, it is decentralized — meaning it is stored not in one location, but across many of them. The encryption present in all cryptocurrencies secures all transactions and the creation of new assets.
This encryption is based on a technology called blockchain, which functions a bit like a traditional accounting ledger. The Harvard Business Review defines a blockchain as “an open, distributed ledgerthat can record transactions between two parties efficiently and in a verifiable and permanent way.” Because blockchains, and therefore cryptocurrencies, are decentralized, they are extremely secure against hackers and data corruption.
Bitcoin is far-and-away the most popular and widely known form of cryptocurrency, but there a thousands that are traded openly and more being created all the time.
Cryptocurrency Accounting Factors
With their potential to revolutionize capital markets — many people have called blockchain the biggest technological advancement since the internet itself — investors big and small are getting into the cryptocurrency game. Furthermore, startups are now using initial coin offerings (ICOs) instead of IPOs as a way to generate capital. With an ICO, a company issues a self-created cryptocurrency in lieu of stock. Accountants need to be aware of how to leverage these emerging applications as well as the problems they may pose for the profession.
Some accounting firms have already started accepting cryptocurrency as payment. Those that want to do so without exposing yourself to the crazy-volatile fluctuations of cryptomarkets can use merchant accounts to convert any payment into US dollars upon delivery. Essentially, it allows you to accept Bitcoin and other cryptocurrencies without being stuck with it in your account. Of course, if you’re willing to gamble on the future health of a cryptocurrency, you may not want to convert it at all.
Cryptocurrency and Taxes
As with any asset class, clients want to know how cryptocurrencies will be taxed. In the eyes of the IRS, they are considered property, not currency. Because of that, they are subject to capital gains tax, just like stocks or bonds. If a client of yours has purchased Bitcoin, they probably don’t need to report. Once they are sold, though, they should be logged and reported based on gains and losses incurred within the market.
It’s important to note that these tax laws and many other considerations surrounding cryptocurrencies are subject to change at a moment’s notice. The explosion of Bitcoin in 2017 brought cryptocurrency into the mainstream. There’s no evidence to suggest it’s going anywhere. The question for accountants is: Are you ready?
AccountingSuite is dedicated to staying on the cutting-edge of technology and wants to partner with accountants in this exciting time of creating new value-added services along the cryptocurrency wave. Set up a time to chat with one of our digital specialists! We can explore opportunities together.