This blog was last updated on May 17, 2023
By Sovos Compliance and ZenLedger
As digital currency gains traction across the globe, businesses must stay on top of international crypto compliance guidelines more than ever. These regulations safeguard consumers and ensure ethical conduct by businesses.
In today’s digital age, the world of cryptocurrencies is an investment option for both individuals and businesses. However, navigating the complex tax rules and regulations governing these assets can be a challenge. The IRS requires all taxpayers to report any taxable activity related to cryptocurrencies on their annual tax returns, making proper tax compliance crucial. In this blog we’ll dive into the world of crypto tax compliance, including how to play by the rules and stay in compliance with the IRS.
Crypto tax compliance in the digital economy
Crypto tax compliance is the process of accurately reporting and paying taxes on cryptocurrency transactions, such as buying, selling and trading. Failure to comply with crypto tax laws can result in penalties, interest and even legal action. Additionally, crypto tax compliance can provide peace of mind and help businesses maintain a positive reputation. With the IRS cracking down on crypto tax evaders, it’s crucial for businesses to stay on top of their tax obligations in the cryptocurrency world.
The world of crypto securities compliance is a complex and constantly changing landscape, with different jurisdictions having their own unique regulations. In the United States, the Securities and Exchange Commission (SEC) has recently issued guidance and taken enforcement actions against companies that have failed to comply with securities laws when issuing Initial Coin Offerings (ICOs) or other forms of digital securities.
Companies that sell crypto securities must follow the same rules and regulations as companies that sell traditional securities. They must also follow state laws and regulations on securities. This includes registering with the SEC or qualifying for an exemption from registration, providing accurate and complete disclosures to investors, and complying with ongoing reporting and disclosure requirements.
With underreporting of cryptocurrency in many jurisdictions, businesses can expect the trend of increased regulations and amped up enforcements surrounding cryptocurrency reporting to continue over the next few tax years. As these regulations continue to get more strenuous, exposure to audits and costly penalties increases substantially.
Firms can avoid the costly consequences of non-compliance and protect their profits by having a solution in place that stays on top of constantly changing regulations and ensures compliance for your business.
How businesses can navigate cryptocurrency tax regulations
Whether you’re a seasoned trader or run a business that accepts digital assets, it’s crucial to fully understand cryptocurrency taxation to keep your finances in order.
To help you make sense of it all, here are some essential pointers to ensure your business remains compliant while harnessing the power of cryptocurrency:
- Collecting new customer tax information (i.e. Form W-9) is crucial to staying in compliance. This will become a critical aspect of reporting digital asset transactions upon the release of new Form 1099-DA, which the IRS is currently drafting and is said to be released in 2024.
- Cryptocurrency is treated as property. That means that any gains or losses from the sale or exchange of cryptocurrency are subject to capital gains tax.
- Keep careful records of all cryptocurrency transactions to calculate capital gains or losses. The date, amount, value, and fees or commissions are included. Detailed notes on more complex trades could be helpful.
- If you pay your employees in cryptocurrency, you must treat those payments for payroll taxes in the same manner that you would treat cash payments.
- Depending on which jurisdiction(s) your business operates in, you may have to gather and send sales tax on cryptocurrency transactions. The same is true when using cryptocurrency to purchase an item subject to sales tax.
- Depending on your business, you might be able to write off costs associated with Bitcoin transactions, like transaction fees or mining equipment.
Seeking advice from a tax professional can ensure fulfillment of your tax obligations and ensure that you’re not missing out on any important deductions or opportunities. In the long run, a knowledgeable professional will pay for itself by maximizing your returns.
How regulatory and compliance solutions support industry growth
With increased adoption of digital currencies, the ability to track, monitor and audit transactions is more important than ever. Whether you are a retail investor tracking personal income, working in an enterprise looking for a broader integrations solution, or are part of a government that needs forensic accounting, ZenLedger and Sovos can help.
It is important to understand the intricate web of international tax rules and regulations governing cryptocurrencies. The consequences of not abiding by the rules can be disastrous. With penalties ranging from hefty financial fines to criminal prosecution, it’s better to err on the side of caution. Businesses must understand regulatory frameworks and stay up-to-date with them to stay on top of their responsibilities. Keep yourself educated and responsible at all times to avoid letting ignorance be your downfall.
About ZenLedger
Founded in 2017 and built by industry veterans in technology, finance, and accounting, ZenLedger aggregates user transaction information across thousands of exchanges, wallets, and tokens into one simple dashboard, making it easy to calculate crypto tax liability and populate your forms. ZenLedger helps cryptocurrency investors and tax professionals stay compliant with integration support for over 400+ exchanges, 40+ blockchains, 20+ DeFi protocols, NFTs, and all wallets. Our team of engineers is always working hard to add more native integrations and features, and our customer support specialists are online 7 days a week to walk through any issues.
Take Action
Still have questions about crypto reporting requirements for businesses? Reach out to one of our experts to learn more.
