After cryptocurrencies soared to fame in 2017, millions of accountants got involved with this market. Although they had many reasons to do so, the most common ones are the fact that cryptocurrencies are a growing financial system with countless tax and audit implications. So, any CPA that fails to learn the basics of decentralized, digital coins risks falling behind on worldwide trends.
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A Growing Financial Market
The first reason why accountants need to understand cryptocurrency revolves around the new financial market. In the past, large financial institutions like banks played an authoritative role where they control all debit and credit cards. Now, cryptocurrencies introduced a way to neglect banks as the middlemen that buyers and sellers utilize. Instead, they can directly transact with each other via the so-called blockchain technology. Due to the unprecedented advantages of this system, millions of users rapidly switched to crypto-based assets. In order for accountants to grow their practices in the long-run, it is then crucial to be versatile and include cryptocurrency knowledge in their resumes.
Although cryptocurrencies are the latest financial market with unimaginable power, they also have roles in the investing world. For instance, every single cryptocurrency ever invented has a digital coin/token that can be used as a store of value. Think about how Bitcoin started 2017 with less than $1,000 per coin. At the end of 2017, however, it went up to over $19,000 per coin. For investors who purchased this asset, such a drastic increase in value meant large gains that they pocketed if they sold their coins. Enter the Internal Revenue Service. Just like any trading gain, which includes stocks, bonds, options, and so on, digital coins must be taxed. For accountants and those thinking about pursuing a financial planning degree, this presents another opportunity as they can specialize in cryptocurrency-related gains for tax purposes.
Additionally, even the transactions made using cryptocurrency may be subject to tax. This is because the value of digital coins changes. For instance, consider a hypothetical investor that purchased an Ether coin for $100. After a few months, that Ether coin presumably grows to $150 due to favorable market conditions. The investor then decides to use that coin to purchase another asset which costs $150. Well, since the investor had an additional $50 in spending power, the IRS sees it as a taxable gain. Meaning, the tax needs to be paid even though the investor used their Ether to purchase something instead of trading it.
Accounting firms bring the vast majority of their annual revenues from auditing engagements. This is a practice where they review corporation’s financial statements and verify the accuracy of all numbers. If everything is reported correctly, they sign off on the statements that the investors subsequently use to invest in the company in question. With crypto-based ventures, the number of companies needing audit services grows. Consider the mind-boggling fact that there are now over 1,500 different digital coins in existence. To a CPA or those considering financial planning degree, this means 1,500 initial coin offerings that may need to be audited and reported on.
Other important factors are related to accountants’ ability to mitigate safer financial practices and better spending habits. Not to mention the innovation that surrounds the entire framework of digital investments. Ultimately, the reason why accountants need to understand cryptocurrency will vary in different regions and industries.