Accounting for Cryptocurrencies

Cryptocurrency is a non-standard financial tool. Look around, they are talking of Bitcoin, Dogecoin, Litecoin, Dash, etc., – here and there! And, probably, you have already heard about mining and digital assets and other similar things. 

Today, one is mining cryptocurrency on their own, another is successfully speculating with it, and someone is just planning to join the crypto industry. However, all existing and potential crypto miners have the same issues: what is possible, what is impossible, how to pay taxes, what legal status cryptocurrency transactions have at the moment, etc.

To figure out the things mentioned above, as well as to learn how to mine crypto and earn money from it, first find out the specifics of crypto mining accounting.

What Are Cryptocurrencies In Brief

Simply put, cryptocurrency is a payment instrument that exists only on the Internet. Digital tokens have no paper expression, and their value does not depend on the state, unlike fiat money.

The cryptocurrency is built on a blockchain system – a chain of information blocks. They are used to transfer digital money from person to person without an intermediary.

Bitcoin was the first digital coin, launched in 2009. Since then, the number of varieties of digital coins has been growing.

Cryptocurrencies are the first market where there is practically no institutional capital, and this, in turn, generates volatility.

Why is the crypt so volatile?

Mainly, cryptocurrencies have high volatility. This is primarily due to the relative youth of the crypto market. The given industry has not yet been fully regulated, it has a lot of fresh mechanics and an audience from different parts of the world. The asset price is highly susceptible to investor sentiment, as there is no clear set of rules for the market.

Evaluating the potential and value of crypto money is a crucial step for investors to make informed decisions.

The cost of a cryptocurrency depends on its market demand, investor expectations, and some other aspects. Current financial trends, and general economic conditions, also play a crucial role. Thus, positive news can boost confidence, and prices grow, whereas negative news can lead to lower prices.

Basics of Crypto Accounting

Nowadays, accounting for crypto assets is at the top of discussions among accountants and investors.

Crypto mining accounting is the process of tracking and recording the value of your virtual money assets. It includes the processing and analysis of all types of crypto transactions. Also, digital currency accounting is necessary for private blockchain investors. 

Why is this necessary?

The purpose of such accounting is for the user to have an up-to-date and complete overview of the balance sheet and own funds of both the whole company and the value of the investment portfolio of a private investor. With the help of correct accounting for virtual currency, it is possible to calculate tax liabilities arising from making a profit from digital money investments on time. Besides, you will consider the losses and receive a transparent and understandable report for subsequent submission of this document to the tax authorities.

 

So, proper accounting for cryptocurrencies is a necessary procedure for any responsible crypto investor.

Specifics of crypto mining accounting

The fact is that currently, in some countries, interest in cryptocurrencies has begun to manifest itself at the state level. In some developed countries, this field is left to entrepreneurs completely. In the DPRK, cryptocurrency mining is one of the important measures to support the national currency.

But in any case, in whatever place of the world you mine crypto, do it legally. Cryptocurrency miners, both individuals and those working in the pool, must do the following things for this: 

 

1. Review the laws of your jurisdiction to determine whether cryptocurrency mining is legal and whether it is subject to any regulations.
2. Register with the relevant authorities, if required by the law of a particular state.
3. Comply with anti-money laundering and KYC laws.
4. Pay taxes on your income in accordance with the laws of your jurisdiction.

When mining a crypto, you need to remember about proper crypto mining accounting!

Thus, crypto miners should be aware of two types of taxes: 

 

• Income tax if the miner earned money from mining operations.
• Capital gains tax. You will pay this fee if you use the mining reward to increase your capital.

 

Thus, all income received from mining operations is taxed. The tax amount depends on the market value of cryptocurrencies on the day they are received. 

 

If a miner manages to earn 0.50 BTC from March to July 2024, he will be required to pay tax based on the price of Bitcoin in dollar terms on that particular date.

 

Besides, the tax rate you pay on mining income depends on your income level. 

What happens if the tax is not paid? 

If you mine a cryptocurrency and earn certain funds from it, you are required to pay tax. If you do not provide the Tax Authorities with your mining income, you will face not only a large fine but also imprisonment. The maximum penalty for tax evasion is up to 5 years in prison and a fine of $100,000.

 

Standards in Crypto Accounting

If you are engaged in mining cryptocurrencies, you must indicate your income on your tax return. Cryptocurrency mining taxes can be difficult to calculate, so figure out how the entire reporting process goes from the first place.

To date, the leading bodies that set standards for the accounting for virtual currency are the IASB (International Accounting Standards Board) and the International Financial Reporting Standards Board (FASB). Accordingly, these authorities are responsible for the development and publication of International Financial Reporting Standards (IFRS) and accounting standards under the US GAAP.

Although both of them are aimed at increasing the transparency of financial statements, accounting for crypto assets by IFRS and US GAAP will be slightly different and should be applied following the jurisdiction of the relevant organization.

The distinguishing feature between crypto mining accounting for digital assets under IFRS and US GAAP is that IFRS lets accounting for intangible assets or inventories. And, while under US GAAP, crypto assets can only be accounted for as intangible assets.

Wiex's Commitment to Accounting Transparency and Crypto Wallet Technology

To earn money from mining cryptocurrencies and at the same time not violate the law, you need to make timely reports. In this sense, it is crucial to find a reliable tool for carrying out all necessary accounting for cryptocurrencies operations, especially for cryptocurrency wallets. 

The Wiex platform allows users to exchange, deposit, and withdraw funds using diverse cryptocurrencies, including Bitcoin, Ethereum, Litecoin, USDT, etc. The platform strives to provide its customers with a decent level of safety, privacy, and transparency.

The exchange uses state-of-the-art security measures, including two-factor authentication, SSL encryption, and cold storage of funds to ensure the safety of investors' assets. 

Wiex also fully complies with the Anti-Money Laundering (AML) and Know Your Customer (KYC) rules.

The Wiex platform makes very active use of accounting for crypto assets technology, so it is compatible and able to provide evidence or reserves. Besides, Wiex cooperates fruitfully with Cryptio, which increases work efficiency. It ensures maximum transparency and compliance with the requirements when accounting for crypto transactions at any level.

Conclusion

Proper accounting of digital assets is necessary for individuals, businesses, and organizations that own, trade or mine cryptocurrencies. Neglecting to account for digital assets can lead to non-compliance with regulatory requirements and legal and financial consequences in the long term.

Wiex is engaged in the development of accounting for cryptocurrencies standards and automation. Regardless of whether you are an experienced trader or a beginner in the crypto space, there is WIEX.io. It provides the best services, so you will confidently purchase, sell and manage crypto tokens. Join us today and discover the future of finance with our groundbreaking and trustworthy crypto exchange platform.