For RJ, a 38-year-old certified public accountant in Chicago, tax season is never easy. “Every year it’s been hell, the worst 15 weeks of my life over and over again,” he tells me. “But now I would do anything to go back in time to avoid what’s coming. I can’t believe I was naive enough to think it couldn’t get worse.”
RJ is dreading this year’s tax season due to the unprecedented number of people who took interest in trading stocks and cryptocurrency over the course of 2021. To get an idea why, here’s how RJ first realized something terrible was coming his way: “I’ve been doing the taxes of a friend from college’s little brother — he’s worked the same job since graduating so it’s been a pretty simple filing every year, and I give him the family and friends discount,” RJ explains. “This year, bless his heart, he emailed me early asking about crypto taxes, so I had him send over a document of his investments.”
In response, “he sent over a massive spreadsheet with an endless amount of transactions, most of which were like ‘Bought $45 of Cumcoin at $.000000065 on PancakeSwap,’ and ‘Traded 750,000 SHIB to BLAZE on CoinFort, transferred to XCryptoX Wallet,’” RJ says. “I almost walked out of the office and straight into the lake.”
RJ isn’t alone in agonizing over the forthcoming tax season. “I’ve been a CPA for 13-plus years and have done seasonal tax work for most of that period,” says Colin Smith, a CPA in Ohio. “This tax season is shaping up to be more stressful than ever before, as there are a number of ways the explosion in crypto and retail stock trading can create major headaches for accountants.”
To start, Smith explains, “the massive amounts of new investors piling into retail and crypto trades during 2020 and 2021” means there will inevitably be an “enormous amount of people who don’t fully comprehend all of the information they need to keep track of or gather for tax season.” Unlike investment brokerages that methodically chronicle of all the data needed to report stock trading through 1099s, “crypto platforms are notorious for being much less robust and inconsistent in their tracking and reporting capabilities,” Smith tells me. “In fact, it’s not uncommon for many platforms to insufficiently track the cost basis of your crypto trades, or not track them at all.”
In turn, clients come to their accountants with bank accounts showing profits or losses from trading crypto, but zero paperwork showing where and when those transactions took place. This all amounts to “more time spent on checking for accuracy and making corrections for taxes,” Smith says.
Such is the case for Gail Rosen, a CPA in New Jersey with 30 years of experience under her belt who is similarly bracing for “a larger number of crypto transactions among more generations of our clients than in any year past.” “Accounting for the crypto transactions requires more of our time because each sale must be matched to the cost of the buy, or the ‘cost basis,’ for the number of crypto sold,” Rosen tells me. “People tend to sell a portion of their cryptocurrency portfolio throughout the year, then hand us pages upon pages of their transactions without realizing the work involved in order to compute the capital gains and/or losses.”
From there, Smith says, there’s yet another headache in store for accountants: “Investors who may have sold their positions in stocks or crypto last year may be surprised to discover the tax consequences of their trades. Unexpectedly high tax bills tend to create lots of Q&A time with CPAs to explain why certain trades generated so many taxes and discuss available options to reduce their tax bill.”
Besides denouncing “the occasional spitwads who tell people to not pay their taxes,” RJ has taken time to comment in Reddit threads with advice on “what people who invest in crypto or stocks need to report, and how they can make it easier for their accountants, or themselves.” The same for Rosen, who advises her clients who’ve traded crypto to look into an app like CoinTracker, which essentially simplifies all the necessary transaction data into a more standardized tax format.
“I thought last year was bad with the two stimulus checks, but this year has the surge of crypto and retail trading on top of a third stimulus check and, oh yeah, the Child Tax Credits,” RJ says. “If you haven’t already, I’d say now is a good time to start checking in with the CPAs in your life.”
You might not get a tax break because of it, but you’ll definitely be giving your accountant a break.