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How to Advise Clients Who Use Cryptocurrency

As more business owners turn to cryptocurrency, accountants need to be proactive to provide these clients with up-to-date information they can use to reach their financial goals. This means asking the right questions, using software to track crypto transactions and the taxes behind them, and being a trusted expert who can offer strategic financial advice. 

First things first: Cryptocurrency is considered property and is therefore a capital asset, so crypto transactions are absolutely subject to tax in the United States. (Keep in mind that turning U.S. dollars into crypto is not taxable, though.)

“The minute you start ‘putting your crypto to work,’ as we say, by trading it, paying someone with it or sending it to another person or entity, you have a slew of taxable events, whether you’re selling at a profit or a loss,” said Sonia Dumas, founder of Curio Haus, which educates accountants and business leaders on cryptocurrency so they can better assist clients who use it.

Dumas recommends accountants become familiar with software that will track a client’s crypto transactions and the taxes associated with them. This is especially crucial for clients who use multiple crypto wallets, which keep a person’s “private keys,” or passwords, safe and accessible. It’s also important for those who use deFI (short for decentralized finance) applications for crypto investment trading. Accountants must also be aware of the cost basis, which is what crypto tax-tracking software will do, Dumas said.

Above all, Dumas suggests that accountants ask their clients targeted questions about their personal use of crypto and how they use it (or want to use it) for their business to help their clients reach their financial goals. The first question, which can simply be sent in an email, is whether they are trading crypto or involved in crypto in any way. 

“This will help an accountant know if that client is moving their business onto the blockchain, and it will help them see where their client could be, or currently is, in the crypto process,” Dumas said. 

The next step is to “put on a financial advisor hat” and ask the client why they have chosen to add crypto to their personal assets to better understand their strategy. If they are trading and investing, find out whether they are on centralized exchanges or involved in deFI to determine whether they are earning additional income. Finally, make sure your client has safeguards in place for their estate so their family members can access their assets in case of death or serious injury. This means having the passwords or private keys to access their wallets, knowing which wallets are on which devices, and knowing which deFI apps are being used.

For business-owning clients, you’ll want to gain more detailed information about how they’re using crypto or want to use crypto for their business. First, find out why your client is interested in getting paid in crypto. Are they hoping to build wealth through their business or to use crypto as collateral for future financing? Or is it just a cool marketing ploy?

You’ll also want to ask follow-up questions, including: 

  • Once they accept crypto, do they plan to stabilize all or some of that currency by turning it into cash or using a stablecoin such as USD Coin?
  • What service are they using to facilitate getting paid in crypto? That service should have backend access to all the transactions, taxable events and so on, much like Square and similar payments platforms, Dumas said.
  • Do they plan to earn interest on the crypto they keep? Find out whether it’s sitting idle or if they plan to put it to work in deFI or accumulate it for financing down the road, Dumas said. 
  • Are their business transactions combined with their personal ones? They should be using separate wallets for business transactions to make life a lot easier, as Dumas put it. 
  • Do they use a multisignature (or multisig) wallet? These wallets require two or more private keys to sign and send transactions. Depending on how the business is set up, a multisig wallet might make sense so multiple people can approve transactions. 
  • Do they plan to pay vendors in crypto or use it for payroll? If so, taxable events will kick off then, and you will need to know which application to use to track these events and the cost basis, Dumas explained. Plus, you’ll then be able to recommend a platform to other clients who want to use crypto in the same way.

“It’s all about being strategic and proactive to see where your clients are heading. If they’re involved in crypto, you know there will be a lot more questions around transactions that you need to dive into deeper,” Dumas said.

We’re still in the early days of crypto, so not having all the answers is to be expected. The best thing a CPA can do for a client who uses cryptocurrency is to understand their strategy. This is especially important because these clients are typically already aware of the risks associated with using crypto and want to be advised, not discouraged. 

“People who are in crypto love to talk about it! So you don’t have to guess; you just have to ask. From there, you can understand whether they have a solid strategy or whether they are being foolish,” Dumas explained. 

Ask your client whether they have  a contingency plan if the market tanks, for example. If they are risking it all and their business is on the line, make sure they have some money to play with but also some money that’s not to be touched. 

“There are those in crypto who have a gambling mentality. Instead of going to Vegas, they go to crypto! It’s all about having a game plan. Then, clients will see that you’re looking out for their best interest,” Dumas said. 

Finally, keep your personal views of crypto separate from your business. This mentality can be a barrier to helping your client, and at the end of the day, it’s your client’s money. According to Dumas, it’s no different from a client who is into the cannabis industry, for example: both industries have certain tax implications and unique characteristics. 

“The best thing to do is become an ally to clients who are in this field. They will be looking for advice around tax-saving strategies and structural strategies since crypto is considered property. You can show them how to save on taxes, minimize taxes and set up their estate correctly. Those fundamental strategies still apply,” she said.



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