Cryptocurrencies can be treated differently to standard assets. This, combined with limited CPA resources and extensive knowledge about cryptocurrency taxation, creates a stressful tax season.
It is difficult to understand the current framework because the IRS treats cryptocurrency like Bitcoin ( Bitcoins) and other nonfungible tokens differently than other assets, classifying them property. Investors often need the assistance of professionals or proper crypto tax software in order to properly record these activities.
The management process is complicated by other rules, such as the suggestion that the purchase of assets in 2021 using fiat currency (dollars), doesn’t need to be indicated on a tax report.
However, you will need to file a report if you sell or exchange the same virtual currency. The sheer volume of data required to navigate through for traders who hold many currencies or do a lot of trading can make it more complicated.
In previous years, it was possible to leverage a tax professional to assist with the more complicated nuances of tax management. However, this year has seen a significant decline in the number of tax professionals. Investors are often left to their own devices when it comes to calculating taxes due to the COVID-19 pandemic. There are more reports of burnout, overtime hours and other issues.