Bitstamp, one of the largest crypto platforms in Europe, has partnered with Sovos, a startup that focuses on cryptocurrency accounting and auditing, in order to modernize its tax information reporting.
The reporting obligations for cryptocurrency in the US continue to evolve at a breakneck pace, often lacking clear guidance from regulatory authorities. Most notably, the Internal Revenue Service has added a question to the standard 1040 form, America’s primary income tax form. The compliance measure comes in the form of a checkbox and asks taxpayers to disclose if they have ever dealt in cryptocurrencies in 2020.
Bitstamp will use Sovos’ technology to automate its 1099 forms and filings, which helps reduce potential human errors and ensure automatic regulatory updates. The company’s Tax Information Reporting solution, which has experience in handling tax issue in alternative currency markets, allows Bitstamp to protect its users just as investors of other asset classes.
“The Sovos solution automates complex reporting at the federal and state level, which allows our team to focus on other client-centric initiatives,” said Hunter Merghart, Head of U.S. at Bitstamp.
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“As cryptocurrencies grow increasingly popular, they have in turn fallen under heightened IRS scrutiny. Bitstamp understands that to remain compliant, they need a trusted partner like Sovos to automate what can be a truly arduous and confusing process,” added Paul Banker, general manager of Tax and Regulatory Reporting at Sovos.
IRS Gets Serious About Cryptocurrency
This collaboration with Sovos should address the reporting needs of the cryptocurrency customers in the upcoming tax season, which kicks off in January. As such, accounting professionals servicing crypto-transacting clients will have sources required when reconciling cryptocurrency balances and transactions.
Recently, there have been numerous reports emerging of tax authorities clamping down and going after traders underreporting their cryptocurrency profits. The IRS also sent letters to taxpayers who might have failed to report income and pay the resulting tax from cryptocurrency transactions.
At the very core, the IRS still deems crypto assets to be property rather than currency for income tax purposes, the same as its regulatory guidance came out five years ago. That means the authority will continue to tax crypto profits and losses like those for stocks, at capital gains rates.