Software Options For Cryptocurrency Bookkeeping Reconciliations

Software options for cryptocurrency bookkeeping reconciliations

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Adopting Bitcoin With Ledgible

5 Things You Need to Know

By Carrie Dagenhard (technology writer)

 

Not since the advent of online banking has new technology shaken up the world of finance (or sent waves of anxiety through the accounting community) quite like cryptocurrencies. While the concept of digital currency has been around for more than three decades, it has exploded in popularity over the past couple years.

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In , curiosity rose to a fever pitch — thanks largely to the Bitcoin pandemonium, an uptick in cybercrime and a growing desire for increased security.

 

As you’ve likely already discovered, cryptocurrency has many complexities.

And as an IT Professional or QuickBooks ProAdvisor it’s important you feel prepared to handle the challenges it brings to your work.

QuickBooks Crypto Advantages

In fact, you may have already encountered client questions about cryptocurrencies and accounting, and may even have clients investing in digital currencies, or accepting them as payment. Whatever the case, it won’t be long before you’ll be venturing full speed into this new frontier.

Before the tax season kicks into full gear, we’re going to clear the haze around cryptocurrencies and accounting and equip you with the knowledge you need to handle questions about investing, tax filings and more.

But first, let’s talk about the technology that makes Bitcoin and other cryptocurrencies possible:

THE BLOCKCHAIN.

In , an anonymous person (or group of people) going by the name Satoshi Nakamoto conceptualized the blockchain, an autonomously managed database that acts as a ledger for Bitcoin.

It’s transparent, highly secure, self-auditing and self-reconciling (music to an accounting pro’s ears, eh?)

One of the greatest benefits of blockchain, however, is that it solves double - spending — a key flaw in digital currency where a digital token can be duplicated, falsified and spent more than once.

This single attribute has led multiple other cryptocurrencies to hop aboard the blockchain train.

Essentially, the blockchain has simplified record keeping and reduces the opportunity for error and corruption. And if you’ve ever experienced the pure hell of keeping up with multiple revised versions of a Word doc or reconciling records between separate databases, you can probably understand its appeal.

Enter Bitcoin, or better yet, the Bitcoin madness of , and this formerly obscure crypto is on everyone's radar (not just the original early adopters).

Software options for cryptocurrency bookkeeping reconciliations

Now your clients are asking if they can pay in Bitcoin, or having to deal with cryptocurrencies in their accounting software and processes, and more importantly, their taxes.

Given that there's a brave new world of cryptocurrencies out there, what are the most important things to be aware of as an IT or accounting professional? We’ve rounded up five must-know tips to help you avoid the most common pitfalls.

 

 

5 Must-Know Things About Cryptocurrency

1.

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THE US TREATS CRYPTOCURRENCY AS PROPERTY

The IRS regards cryptocurrency as property and requires the value be reported in US dollars at whatever the fair market price was at the time of receipt or payment.

So despite fluctuations in the market, the value of a client’s cryptocurrency should be reported on their tax return as the amount it was worth at the time they received it.

If your client exchanged, spent or sold their cryptocurrencies in , they must report it as a capital loss or gain for each transaction.

2.

Software options for cryptocurrency bookkeeping reconciliations

CRYPTOCURRENCY IS TOTALLY PEER-TO-PEER

Cryptocurrencies are entirely decentralized — which means there is no central authority, and they are not backed by any state entity (like the US Mint).

And it’s all possible due to the blockchain technology we touched on earlier.

Because blockchain is a global ledger based on a peer-to-peer network, it records every single transaction and shares them to all users.

A recorded transaction can only be altered with the full consensus of the majority, which helps limit fraud.

3. THERE ARE MORE THAN ONE-THOUSAND TYPES OF CRYPTOCURRENCY

To date, there are around cryptocurrencies available over the internet.

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Whew.

The good news? You don’t need to be familiar with all of them.

In fact, because all cryptocurrencies should be reported on tax returns the same way, you don’t need to keep up with names or details of each of these currencies. All you need to know are their respective fair market values.

But just in case you’re curious, Bitcoin, Ethereum, Ripple and Litecoin are the most common cryptocurrencies in the US — and the ones you’re most likely to encounter this year.

4.

CRYPTOCURRENCY CAN BE VOLATILE

As an accounting professional, or  QuickBooks ProAdvisor, your clients expect you to keep your finger on the pulse of everything money-related — so it shouldn’t come as a surprise if they ask your opinion on investing or paying employees in cryptocurrencies.

The best thing you can do is remind your clients that while cryptocurrencies can quickly gain value (as we saw with Bitcoin in ), they’re highly volatile.

Accounting for the Bitcoin Age

This sort of investment is a great option for risk takers but should be balanced with low volatility stocks. And when it comes to paying employees, the headache of record keeping the market value at the time of each and every payment is enough to steer them away.

5. CRYPTOCURRENCIES ARE HERE TO STAY

Despite market uncertainty and relatively high volatility, cryptocurrencies likely won’t be going anywhere — at least not anytime soon.

And as digital currencies become more prevalent and accepted, more of your clients will consider investing in cryptocurrencies — or will be pressured into accepting them as payment.

Software options for cryptocurrency bookkeeping reconciliations

Understanding how these currencies work, and the blockchain technology that makes it all possible, can help you overtake any ill-prepared competitors.

 

 

Next Steps

We know much of this is overwhelming. After all, tax season is stressful enough without having to learn the rules of a brand new type of currency.

But given its relative newness, clients don’t likely expect you to have all the answers.

Software options for cryptocurrency bookkeeping reconciliations

The best thing you can do for your clients (and your sanity) is to take it one step at a time. Furthermore, make other aspects of your job a little easier by automating as much as possible — like adopting time tracking software to keep tabs on all the extra time you might spend making sense of a client’s Bitcoin investments.

Finally, don’t forget to stop and take deep breaths.

You wouldn’t have become an IT or accounting pro if you didn’t love a good challenge, right?