In a brief interaction, Abhinav Soomaney, Founder and CEO, CryptoTax International talks about the challenges and complexities that individuals and businesses face when it comes to reporting and complying with tax regulations related to cryptocurrency transactions
How have you seen the landscape of cryptocurrency taxation evolve?
Initially, we relied on clients to provide us with information, such as transaction records in excel files. However, we soon realised that clients were unable to find the correct data on the blockchain, so we started obtaining transactions from wallet addresses on their behalf. Although we have changed a few data sources over time, we have been using the same source since 2020, which has been beneficial for us. We have noticed some instances of inaccurate spot rates for tokens, which can only be manually fixed and identified, as software alternatives relying on API keys and algorithms can be prone to glitches. When I first started assisting clients, we worked with around 50-80 clients, and now I am proud to say that we have helped over 600+ clients with their crypto taxes.
As one of the first crypto tax accounting firms, what motivated you to specialise in this niche area of taxation?
As pioneers in the space of crypto tax accounting, we recognised early on the unique challenges and complexities that individuals and businesses face when it comes to reporting and complying with tax regulations related to cryptocurrency transactions. We saw a growing need for specialised expertise in this area and a lack of resources available to help clients navigate the rapidly evolving landscape of crypto taxation. By focusing exclusively on this niche area of taxation, we can provide our clients with the expertise and personalised guidance they need to ensure compliance and maximise tax efficiency in their crypto endeavors.
What challenges have you encountered in providing tax services for cryptocurrency transactions compared to traditional forms of income?
When preparing taxes for traditional income sources, it’s easy to determine earnings and expenses by referring to invoices, income forms, and bank statements. However, reporting taxes for crypto trades is more complex. Clients make transactions using local exchanges, wallet addresses, and sometimes foreign exchanges using VPNs. Trade history for transactions made using wallet addresses can only be obtained from the blockchain database. This poses challenges, such as inaccurate data from exchanges and incomplete data from clients, which must be obtained accurately for accounting purposes. The raw data is the main source of information for accounting.
In what ways has being an early player in the crypto tax accounting industry given your firm a competitive advantage?
As an industry leader, CryptoTax International has had the privilege of assisting a large number of clients and leveraging our extensive experience in this space since 2017. This deep-rooted expertise enables us to effectively solve problems and swiftly identify taxable trades. In terms of opportunities, we proudly established ourselves as the first specialised accounting firm in the crypto industry to successfully navigate complex crypto tax issues. Our commitment to excellence is reflected in our ever-growing client base as we continue to expand our services to new geographical locations. For example, we have recently begun assisting clients from Canada. It is noteworthy that while the base calculation method remains consistent across most countries, the taxable amount due varies based on local reporting laws.
Can you outline some of the key learnings and insights your firm has gained from working with clients in the cryptocurrency space over the years?
Experience and exposure set us apart in the crypto space. Learning from each client is crucial, but having the right clientele is key to gaining a broad understanding. Assisting only day trader’s limits exposure to insights on investments like defi, BRC20, ordinals, inscriptions, NFTs, etc. In this field, it’s important to review and confirm client-provided data, as they may not verify exported information from exchanges or wallets. In “new age – crypto accounting,” it’s the accountant’s responsibility to ensure accuracy, despite deviating from traditional accounting practices.
As an early mover in the field, what advice would you give to other accounting firms looking to enter the crypto tax space?
I recommend cross-verifying client-provided data and not solely relying on it. Files exported from exchanges may have missing information on trade value, so manual checks and updates are necessary. Download trade history for wallets directly instead of relying on clients. Carefully study trade history files to understand trade types and unique investments (LP, Staking, Farming, etc.). As an accountant, using a tax software alone to file the clients’ taxes is not sufficient. Existing tax software alternatives often struggle with identifying complex trades, accurately classifying transfers, and detecting inaccuracies in spot rates due to API glitches. If the software cannot be used as supporting documentation for an income tax notice or audit, I do not recommend using it.
