What accountants need to know about cryptocurrency
This year may bring a barrage of questions from accounting and advisory firm clients about cryptocurrency, and Matthew May wants to help you be ready for them.
“People always ask accountants about different asset classes and what people perceive to be investments, and cryptocurrency is what everyone wants to talk about this year,” says May, founder and chief operating officer of Acuity, an accounting service for early and growth-stage technology companies. “And it is something very few people have any experience with.”
“In addition, some business owners are exploring accepting cryptocurrency from clients, so they want to know more about whether they should and if so, how that will work,” says May, who recently led a webinar for Sageworks on cryptocurrency.
Cryptocurrency is a form of currency that only exists digitally and relies on encryption for the security of transactions. There are thousands of forms of cryptocurrency. Some of the best known are Bitcoin, Ethereum and Ripple. May says accountants will benefit from knowing the basics of cryptocurrency and from thinking about what answer they will give to clients asking about it.
“It’s also a timely topic because of a lack of good information about cryptocurrency,” May says. “Everybody’s still talking about the nefariousness of it so some people just shut down on trying to understand it,” he says. “Everything you see in the press is sensationalized, but there are practical applications.”
May sees ways accounting clients might accept cryptocurrency for payment without being exposed to the volatility of the asset. For example, merchant accounts can immediately convert cryptocurrency payments into dollars so businesses are able to accept Bitcoin, for example, without getting paid in Bitcoin.
“Clients who can afford to take more risk and early adopters of technology seem to be the types of clients who are currently most interested in accepting cryptocurrency,” May says. “But some companies are also exploring paying employees or vendors with cryptocurrency, and these clients will need to know about various IRS reporting requirements.”
“Accountants are also going to have to help clients understand the reporting and tax ramifications of trading cryptocurrency,” May says. “Cryptocurrency is treated as property—not as currency—for federal tax purposes, so the IRS treats buying Bitcoin similarly to buying a share of stock on the stock market. Under the tax reform plan just enacted by Congress, turning one form of cryptocurrency into another form means the owner has to pay capital gains taxes on the virtual currency activity too, and this is likely to be news to people,” May says.
“Practitioners are going to have to unwind this for those folks,” he says.