How to Choose a Crypto Tax Professional (Part II)

The nitty gritty of choosing a crypto tax pro

In Part I we examined the legacy approach and the anatomy of tax return preparation to segue into being better prepared for choosing a crypto tax professional. See Part I. Let’s dive into Part II.

List illusion

Crypto tax software is a must to calculate crypto taxes and either you or your crypto tax expert needs software to get the job done. Choosing the right crypto tax software is an entirely separate blog-worthy exercise. Most crypto tax software provides a list of self-proclaimed crypto tax professionals, however there may be little to no requirements for getting on the list. Therefore, the list can create the illusion that every professional is some kind of qualified expert. Professional crypto tax directories are simply a good place to start and where the rest of the work begins.

Certifications and designations

There are several new crypto tax certifications, badges and designations for crypto tax professionals. A certification course does not magically turn a tax professional into a crypto expert. Courses can be part of the long process to become an expert but no one becomes a crypto tax expert after a two-day course. This is no disrespect to the quality of courses (especially considering we create crypto courses) but using crypto is the best teacher. With that said, CPAs (or equivalent such as CAs) are the all-around gold standard in general for individual and business advice. Some attorneys also specialize in taxation. These are the designations to look for, but enrolled agents or other non-certified professionals could be crypto OGs and really good with crypto taxes.

The whole thing

Some crypto tax specialists will NOT take on new clients who prepared their own crypto taxes. In other words, the specialist will only sign a tax return if they also prepared all the crypto tax calculations from A-Z. These are Scenario #4 specialists who will NOT do Scenario #2 and possibly Scenario #3. The professional will likely highlight this on their website but if it's not clear then you need to ask. You have to find out what the professional is willing to do and NOT do and how they work with clients. Here are a few questions you might ask: 

1. Can I prepare my 8949 so you can prepare and file my tax return?
2. I've already been using crypto tax software; can I share my credentials so you can review the data?
3. My crypto has gotten a lot more complicated can you help me review my calculations to make sure it’s, correct?
4. I've had another CPA for years; will you prepare the 8949 so I can give it to my CPA?
5. Will you calculate my crypto taxes and prepare an 8949 so I can file my own taxes?
6. What is your process for sharing sensitive crypto tax data to keep it secure?
7. I haven't filed crypto taxes for several years; can you help me with that?
8. I did my own crypto taxes in prior years, but I'm not confident its correct. Can you prepare my current tax returns?

The waiting list

Some crypto tax specialists have a waiting list for new clients because the work can be complex which also makes it difficult to scale up and train new crypto savvy professionals. You might find a service provider you love who can't work with you from a capacity issue. It's still worth getting on their waiting list even if you have to hire your second choice in the meantime. If the second or third doesn't work out then your first choice may come calling at the right time.

It takes one to know one

There is NO substitute for crypto experience. Crypto requires hands on learning and cannot be learned academically. To understand crypto is to use it, period. The best crypto tax professionals are crypto power users, but finding the rare combination of the two is the ultimate challenge. Crypto people can easily size up someone's crypto savviness with a 15-30 conversation, so book a due diligence call with crypto tax professionals especially if it's free. After a few conversations, it should be easy to figure out who's a good fit.

Here are examples of a few due diligence questions to ask:

1. How long have you been using crypto?
2. How did you get into crypto?
3. How long have you been preparing crypto taxes?
4. Have you ever used DeFi? If so which DeFi apps have you used?
5. What are your favorite chains and why?
6. Which exchanges and wallets do you use?
7. Do you use hardware wallets?
8. What software do have experience with?

We are specialists

Crypto OGs are the best crypto professionals, therefore firms specializing 100% in crypto accounting and tax are the best service providers. Don't get fooled by "List Illusion." Click on every professional link in a list directory, for example, and the crypto specialty messaging will become clear. The copy should say something like, we specialize in crypto or digital assets, we are crypto experts or we live, eat and breathe crypto. If you see a bunch of other non-crypto services listed it could be a "New Shingle" firm. If the site looks like a legacy accounting firm site with a little crypto copy sprinkled about then it's probably not a firm specializing in crypto. You can also go HERE to find a list of crypto curated professionals. 

The premium

Specialty services usually come at a premium and crypto tax is no different. Expect to pay in the thousands (not hundreds of dollars) Pricing for anything well below the average range is a red flag. Don't shop on price, shop on best fit. If you hire a great crypto tax professional, then you’ll get more value than you paid. Crypto tax professionals have to be cultivated, so the number of choices will expand over time and the price may come down as more competition enters the game. 

Crypto relegation

If you use crypto you end up having to manage your crypto tax and accounting. It's impossible to outsource 100% of the process because you control the source of the data. Even if you wished you could outsource 100% of the process you can't. Taxpayers get relegated into managing a big part of the crypto tax lifecycle even when they work with professionals. The best way to work with a professional and get the best result for your crypto taxes is to think like a team. You follow best practices and get your crypto rounded up. then get the professional (if you choose to use one) to polish the data, apply their expertise and file the tax return. You are both MVPs on the same team. Since you get relegated into crypto tax management the best way to handle it, whether working with a professional or not, is following The Crypto Tax Blueprint™: How to Avoid Expensive Crypto Tax Mistakes & Audit-Proof Your Tax Return.

Good luck

There's obviously lots of factors to consider in successfully completing crypto taxes. You are as much a part of the game as your professional and finding the right one can take some work. Invest the time up front to find the right professional and it will pay dividends. As Robert Kiyosaki says, "Free advice is the most expensive advice."

Good luck and remember your goal is always a Crypto Bullseye™.

Yours in Crypto,

Kirk Phillips, CPA, CMA, CFE, CBP

DISCLAIMER
The information in this post can not be construed as tax, legal or investment advice because professional advice can only be dispensed with an executed engagement letter.