It’s never too early to get your ducks in a row when it comes to prepping for fast-approaching crypto tax reporting, according to accounting executives.
The US Treasury has delayed releasing its new set of crypto tax guidelines. There’s still no word on a definitive timeline for finalized rules — and who is responsible for reporting what, causing headaches for taxpayers, according to Erin Fennimore, head of tax and information reporting at TaxBit.
“There are a lot of exchanges and other crypto-native entities that are reporting already because there’s a lot of value to the end customer,” Fennimore said during a Blockworks webinar. “But, until those final regulations are released, we won’t know the new effective date, nor do we have any further clarity.”
The Infrastructure Investment and Jobs Act (IIJA), passed in November 2021, requires the IRS to define what entities ought to be categorized as a “cryptocurrency broker.” The law has led to continued concerns from crypto proponents wary of what they deem a likely government overreach in terms of who and what falls under that broad designation and ensuing regulatory requirements.
What the law says now
As the law now stands, crypto miners and transaction validators could potentially be considered brokers. But they say they may not have the prerequisite information to complete the IRS’ 1099 form and related requests for financial information.
Some cases are more black and white, though, Fennimore added, so certain parties should get prepared. Now.
“There’s some situations that I think it’s very clear…centralized exchanges are brokers, that is very clear, in my opinion,” Fennimore said. “If it’s very clear, then you should start preparing now.”
Even given an uncertain regulatory outlook, there are steps industry players can take now to ease the burden down the line, according to Tara Ferris, a principal at EY. That mainly involves getting appropriate infrastructure rails in place, she said.
“We assume that W-9s will be required, just as they are required today in the corporate context, and so, in order to do that, you have to have a mechanism to collect those forms and validate those forms,” Ferris said.
Many of the requirements brokers will have to meet have already been defined, she added, making it easier for businesses to start thinking about where they need to ramp up resources and focus their efforts.
“What we know is that we’re going to need to start recording sales of digital assets, we’re going to need to know the cost basis and holding period for reporting on these digital assets, we’re going to need to issue broker transfer statements for transfers to other brokers,” Ferris said.
Plus, according to Fennimore, the earlier taxpayers start to think about what will be required and what rails they will need to have in place, the better.
“Don’t try to tackle everything at once,” Fennimore said. “Take it in incremental steps because you’re gonna be much more successful trying to tackle one thing at a time than everything all at once.”
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