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Readiness for Crypto Investors, Companies and Entrepreneurs

Whether engaging in cryptocurrencies or digital assets (“crypto”), starting a crypto company or just investing, how good are your books and records? Do you have the right tax and legal advisors to help you with compliance or deal with federal, state, and foreign tax controversy matters?

Maintaining a clean set of books and records, completing the year-end financial audit, and complying with taxing authorities depend on the steps you take today. Whichever actions you or your team take, follow these tips and always ask this important question: “Are we ready?”

Tip #1: Seek Expert Advice

Engaging in crypto can be exciting and rewarding, but crypto transactions can impose audit, accounting, tax, and regulatory or compliance concerns To avoid woes, engage experienced crypto professionals, such as lawyers, accountants, tax advisors, auditors, valuation specialists and other advisors to support you along the way.

Some professionals say they know crypto, but do they? It is important to do your homework and consult professionals with proven crypto experience and knowledge. Surround yourself with the right experts to avoid costly mistakes.

Tip #2: Choose the Right Entity and Structure

Choosing the right business entity and legal structure is critical to starting and running a successful business. The business legal structure determines the levels of taxation, tax rates, regulatory and compliance burden (management and paperwork requirements), fundraising, access to traditional capital markets, compensation, distributions, and even future transactions such as a liquidity event or business combination. The legal entity choice and structure may also impact worker/employee mobility, talent acquisition and employee retention. It is important to have the right legal and tax advisors to help your growing business and to understand available options across multiple jurisdictions.

Tip #3: Protect Your Intellectual Property

The choice of entity and legal structure can have a significant impact on your company’s ability to deploy assets across jurisdictions and build, sustain, grow and commercialize your intellectual property (IP). Whether you are planning to have an open-source protocol or utilize a more traditional business model, IP concerns should be the top issue for any business with emerging technology. The most relevant concerns broadly surround four common types of intellectual property: copyrights, trademarks, patents and trade secrets.

Founders often overlook intellectual property resulting in trapped profits building up in high-tax jurisdictions. Poor management of IP across borders may increase transfer pricing risks and increase tax liabilities, and can also become subject to costly and time-consuming government challenge.

Tip #4: Reconcile, Reconcile and Reconcile

When you engage In crypto, proper tracking and reporting of crypto transactions are mandatory. Your reconciliation should be performed in quantities and dollar values of crypto activities, including staking, lending and DeFi. Reconciliation Is typically done at regular intervals, such as monthly or quarterly, as part of the close process. A reconciliation of crypto activities includes a roll-foward schedule/analysis by (i) quantity and types, and (ii) cost and fair value basis.

Tip #5: Invest In the Right Tools

Many crypto companies wonder which accounting tool or software applications can take care of her crypto transactions and maintain their books and records. Before you invest money Into tools or software applications—whether off-the-shelf accounting software, an advanced solution customized to your needs or a basic spreadsheet program — make sure to do your homework and ask the relevant questions. All toots or software applications will require some form of human interaction.

Tip #6: Understand International Tax Planning and Transfer Pricing

Most crypto start-ups have international tax issues. These issues can range in complexity and can impact the company’s ability to claim certain deductions and foreign tax credits, determine eligibility for tax treaty relief and withholding obligations, and impact the company’s ability to finance U.S and foreign operations or impact the taxation of distributions.

As a founder or a business stakeholder, the onus is on you to maintain clean books and records, and stay abreast of changing regulations. Staying ready is easy if your company’s leaders make this process part of its DNA. Keeping your company’s books and records clean is a strategy that is high on return and low on Investment.

For more insights on Blockchain and Digital Assets, view our website.

About BPM’s Blockchain and Digital Assets Group

Whether your business is a startup cryptocurrency or blockchain company preparing for a strategic event, or a mature cryptocurrency or blockchain company expanding into new markets, BPM provides the technical advice you need to thrive and navigate through the rapidly changing regulatory landscape. For more information, contact Assurance Partner Mark Li or Tax Partner Dmitri Alexeev, co-leaders of BPM’s Blockchain and Digital Assets Industry Group.

Paul Matthew Lobato
Paul Matthew Lobato
Web Administrator, California Business Journals

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