Ernst & Young, a global leader in assurance, tax, and advisory has developed a crypto application that assists with US tax filings. As the IRS continues to crack down on cryptocurrency taxation, the firm believes it has developed a “one-of-a-kind” solution to help people understand their tax liabilities.
The Tax Application
EY recently announced the launch of a cryptocurrency tax reporting application. The application, “EY CryptoPrep” will be a fully automated approach to identify capital gains and losses. The enterprise grade tax application does this by completing 8949 forms for US tax filers. The software introduced by Ernst & Young is said to support the popular digital assets and exchanges, with the ultimate goal of simplicity. According to the firm, CryptoPrep users would go through three easy steps including:
- Importing transactions from the crypto exchanges you use
- Entering any additional off exchange transactions you engaged in
- Downloading a draft 8949 tax form
The crypto tax application leverages the latest IRS guidance, and applies the same practices used on their commercial clients. With over 100 years of tax experience, the company wants to bring tax clarity and efficiency to the digital asset space. Through safe and secure connections to your crypto exchanges, the firm is able to generate transparent reports in no time.
In the announcement, Vice Chair of Tax Services – Marna Ricker stated that:
“Our clients increasingly hold and trade crypto assets, creating the need for an innovative solution to address the evolving complexity around filing crypto taxes. The EY Foundry, our internal corporate venturing unit, created EY CryptoPrep to modernize the crypto tax accounting process.”
In addition, EY Foundry ( internal venture unit) leader Chirag Patel stated:
“EY CryptoPrep expands our innovative portfolio of successful new digital businesses. EY CryptoPrep is another great showcase of our commitment to address the evolving needs of our clients.”
CryptoPrep Filling The Gap
For the last couple years, it’s been evident that the IRS is cracking down on crypto taxes. Aside from the IRS creating new tax forms revolving around digital assets, they have also been involved in the investigation of cryptocurrency ATMs and Kiosks. As the industry continues to scale, the IRS is looking for ways to collect their fair share. Accounting for digital assets can be extremely tricky compared to stocks for example. In the digital asset world, if you pay for something in Bitcoin, that’s considered a “taxable event.” That would be equivalent to purchasing a cup of coffee with Netflix stock… In addition, cryptocurrency is starting to disperse everywhere such as various exchanges, asset manager balance sheets, family offices, tech companies, high net worth investors, and other entities. Streamlining the tax experience will be crucial for the future of digital assets.
What’s Tricky Today
The problem with crypto taxes right now is that many people still don’t understand the sector. With the lack of clarity that still exists, it’s not out of the ordinary to encounter tax professionals that are still confused. Some of the larger cryptocurrency exchanges like Coinbase will provide tax information to their clients, but many exchanges still don’t disperse anything. In addition, people store their cryptocurrency through various outlets like cold and hot storage, which can complicate the reporting process as well. The new EY CryptoPrep SaaS program will connect with cryptocurrency exchanges and make sure it is extracting all of the relevant data.
Progress Being Made
With the complexity around digital assets, creating efficient user experience around taxation is extremely important. Investors and traders are more likely to pay taxes if they can actually understand how to account for them. In traditional finance, platforms like Turbo Tax have taken off, because they essentially create efficient and easy user experience. In the crypto world, we are starting to see the same trends. Aside from applications like EY CryptoPrep, other platforms have emerged as well. One in particular is CryptoTrader.Tax. The tax platform is revolutionizing user experience and has even been integrated with TurboTax for reporting purposes. Movements like these will help the general public, and ensure that a higher amount of people are fulfilling their tax liabilities in the digital asset sector.
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