The Hidden Challenges of Crypto Accounting For Businesses

Cryptocurrency might be shaking up the world of business, but it’s best to not pretend it’s all smooth sailing. Sure, at the moment a lot of businesses are still questioning whether or not this is something that’s worth investing in. But when it comes to accounting, crypto throws a wrench in the works. Taxes? Well, it’s fairly complicated. Bookkeeping? Yes, that can be a bit of a nightmare.

What about compliance? It’s essentially a moving target. If your business is venturing into the crypto space, you’ll need to figure all this out before it gets messy. But for the most part, you don’t need to be a blockchain wizard to keep things under control, you just need the right approach.

Taxes are The Wild West of Crypto Accounting

Well, at this moment it’s like that, and it’s mainly due to the grey area that crypto is still in. So, as you already know, taxes are never fun, but crypto taxes? Well, if you think about it, that’s a whole other beast. The IRS (and other tax authorities worldwide) treats cryptocurrency like property, which means every time you buy, sell, trade, or even use it to pay for something, there’s a chance you owe taxes. Yes, even that Bitcoin payment for office snacks could trigger a taxable event.

However, the tricky part is tracking the value of the crypto at the exact moment of each transaction. You need to keep in mind that prices swing wildly, and you need to know what the fair market value is in US dollars. If you miss that detail, your tax filing could turn into a mess.

So it can massively help to have a tool like block explorer help out, this alone can make it a lot easier. But how exactly? Well, it’s like a public ledger for crypto transactions, so it can help you look up dates, amounts, and other details to make sure your tax records are spot-on.

Bookkeeping Goes Beyond More Than Just Numbers

If you think bookkeeping for crypto is as simple as adding up numbers, think again. Well, nothing is ever that simple, right? For starters, it’s not just about tracking balances in your wallets, it’s also about capturing every little detail of your transactions. 

For example, did you pay a supplier in Ethereum? Did you hold onto some Dogecoin that gained value? Well, every one of those actions affect your financial records. Actually, even “betting” on crypto like Bitcoin will have a major aspect too, as it did for this company.

In fact, the lack of detailed receipts for crypto transactions doesn’t help. Without them, it’s easy to get things wrong. So you really need to track not just the transaction amount but also its value at the time and any gains or losses that happen later. It’s a lot, especially if your business deals with crypto regularly.

There’s a lot of Common Pitfalls in Crypto Accounting

Generally speaking, crypto accounting isn’t just about the tools you use, it’s also about avoiding some common mistakes that can trip up businesses. For example, one major issue is failing to record every transaction. This tends to get ignored, or entirely unnoticed. So, with crypto, even small transactions can impact your tax obligations, so skipping one here or there could lead to big problems later.

Another mistake is not keeping backups of your transaction history. If an exchange or wallet you use goes offline, you could lose vital records. It may or may not be obvious, but having a system in place to regularly export and save your transaction data is critical.

Challenges with Payroll in Cryptocurrency

Paying employees in cryptocurrency is becoming more common, especially among tech-savvy businesses, but it’s not as straightforward as it sounds. For starters, wages paid in crypto must still comply with federal and state labor laws. Employers need to calculate the value of the cryptocurrency at the time of payment to ensure employees are receiving at least the minimum wage in fiat currency terms.

There’s also the issue of tax withholding. You need to keep in mind that crypto payrolls require accurate tracking and reporting of employee taxes, which adds complexity to the already intricate world of payroll. There are tools out there that are making it easier for businesses to properly process all of this, as well as make sure that the tax reporting is meeting compliance requirements, there’s Deel (as an example), but with a quick Google search, you can most likely find some others too.

Inventory and Asset Management with Crypto

For businesses that hold crypto as an asset, managing inventory can feel like navigating uncharted waters. However, unlike traditional assets, cryptocurrency values fluctuate significantly, which impacts how they are reported on financial statements. 

For example, accountants need to decide whether to classify cryptocurrencies as inventory, investments, or intangible assets, depending on how the business uses them. This classification affects how gains and losses are recorded and reported to tax authorities.

The Role of Education in Crypto Accounting

Alright, so one of the biggest challenges for businesses entering the crypto space is simply understanding the rules. You probably caught on at this point, but crypto accounting isn’t like traditional accounting, and the learning curve can be steep. Investing in proper training for your accounting team, or even partnering with experts who specialize in cryptocurrency, can make all the difference.

If you wanted to, you could take it up a notch, for example, workshops, online courses, and consultations with crypto-savvy accountants can equip your team with the knowledge they need to handle these unique challenges. Basically, the more you know, the less likely you are to run into trouble down the line. 

Now, this is still pretty new territory, so just be patient with your accountants, but they’re learning about this as well. Again, there’s still a whole grey area when it comes to this.

Tools That Make It Manageable

You’re not expected to do all this by hand, thankfully, there’s software for that. There are a lot of platforms out there that can help with all of this. They’re different, but most of them connect directly to your wallets and exchanges, automatically calculate gains and losses, and spit out reports that’ll make your accountant’s life a breeze.