No company looks forward to tax season, but for Web3 companies, preparing can be particularly difficult. Global operations subject Web3 companies to a variety of tax regulations and compliance requirements, and many regions lack regulatory clarity. Different digital tokens can have different tax statuses, making correct classification and reporting a huge challenge. The complexity is further increased by having to keep meticulous records of various cryptocurrency transactions, deal with crypto-to-crypto exchanges, and manage market volatility.
Additionally, incorporating blockchain and cryptocurrency data into accounting systems presents additional technological hurdles that the overall tax accounting software market has not yet overcome. And last but not least, Web3 companies are likely to come under increased scrutiny from tax authorities. The bottom line? In all their operations, Web3 companies must be constantly aware of the tax implications of their activities and work diligently to ensure compliance with their obligations. Below, seven members of the Cointelegraph Innovation Circle share their expertise to help Web3 companies prepare for a (relatively) smooth and easy tax season.
Choose a tax-friendly country and ensure payment on time
Timely payment of taxes and due clarity with the tax authorities can avoid unnecessary harassment. Cryptocurrency businesses are viewed with a degree of suspicion around the world, even in those countries that are supposed to be cryptocurrency friendly, such as Singapore. Also, it is very important to choose a tax-friendly country like the UAE to reduce your business expenses. –Abhishek Singh, Acknowledgment of receipt
Ensure all activities are accurately documented.
Web3 companies approaching tax season should hire a tax professional who is well versed in cryptocurrency and blockchain transactions. Ensure all activities, from token sales to smart contract interactions, are accurately documented. Being proactive can mitigate potential tax liabilities and compliance issues. – Tomer Warschauer Nuni, cryptomon
Don’t take shortcuts
Being prepared is vital, as space is not only continually adapting, but also volatile. This means that if you don’t plan correctly and take the right actions, you could find yourself in troubled waters. Seeking help from professionals who know the crypto space and Web3 well is incredibly important. – Ilías Salvatore, Flooz XYZ
Keep meticulous records and seek expert legal advice.
Although cryptocurrencies appear to be moving out of the legal “gray areas,” their institutions still face significantly greater complexity in terms of accounting and tax compliance compared to those that operate with fiat currency. It is essential to maintain meticulous records and collaborate with a legal and compliance firm that specializes in digital assets and blockchain; Guidance on current and future regulations is essential. –Sheraz Ahmed, STORM Partners
Automate transaction tracking
In the digital forest that is Web3, every cryptographic leaf has its shadow. Instead of waiting for “fiscal winter,” take advantage of the fireflies of automation! Design a system that illuminates every transaction, making tax season seem like a serene moonlit night instead of a stormy night. –Arvin Khamseh, NFTS SOLD OUT
Deliver transaction information to experts with specialized software
Work with accountants who are familiar with the crypto space and who can take your transaction information and plug it into specialized software that can sort and summarize blockchain data. You don’t want to do that manually, especially if you’re the type who trades multiple times a day. –Zain Jaffer, Zain Ventures
Find an Accountant with crypto Tax Experience
Work with a good crypto tax accountant as soon as possible. Make sure they have experience handling traditional and crypto transactions from a tax and accounting perspective. Look for a tax specialist who has deep personal experience in crypto, as well as extensive technical knowledge of crypto taxes and who is knowledgeable in using accounting and crypto tax software. –Sharon Yip, Polygon Advisory Group, LLC
This article was published through the Cointelegraph Innovation Circle, a vetted organization of top executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. The opinions expressed do not necessarily reflect those of Cointelegraph.
