All startup taxes are complicated. In crypto, you also have to factor in different sources, wallets, exchanges, and transaction histories across many platforms — the process is daunting.
That’s why we sat down with Alex Roytenberg, CPA, to unpack how crypto and web3 founders can successfully navigate tax season from their very first round.
How should I file taxes for my Series A crypto company?
If you’re a founder who’s just raised a seed or Series A round, keep one essential detail in mind: Not all deadlines start on April 15th.
In fact, many deadlines start as early as January 31st.
Here are two timelines to pay attention to:
- Delaware franchise return — One crucial element to ensure you file on time is the Delaware franchise return. It’s due March 1st, no matter what your fiscal year is.
- Extension requests — If you’re not submitting a return by April 15th, you still must request your extension on time. Perks like R&D tax credits may not be available if you do not have a valid extension in place.
Start your tax season early, and definitely do not wait until the last second to avoid faux pas.
Where do crypto founders often make mistakes?
1. Failing to report every single transaction
In crypto, every single transaction will most likely result in a taxable event.
Whether it’s a gain or a loss, it’s still taxable and must be reported. (And, if it’s a tax loss, you need to file the tax return in order to claim losses down the line.)
This may feel especially complex because, with web3, all of your tax filings aren’t coming from a single source. However, it is still your responsibility to maintain clean records — even if the process is not straightforward.
2. Using new, untested products
Occasionally, founders will utilize brand-new networks or products.
Unfortunately, there are not always systems in place to consolidate them, and gathering information for record keeping is a very heavy lift for founders. So, it’s crucial that founders inform accountants of any transactions in new wallets and exchanges because they can easily get overlooked.
Essentially, over-communicate to ensure clarity. Your accountants just aren’t as deep in the tech space as you are or might not be aware of something new that you are doing / testing.
3. Not making all company assets multi-sig
Multiple individuals should have to sign off on major transactions so no one person can transfer funds intentionally or unintentionally.
Also, all of that cash shouldn’t be in one account. If you’re hacked, you do not want to lose all of your capital in one fell swoop.
What are the best practices for taxes and continuous record keeping?
Download and store statements or CSV exports off any exchanges you use on a monthly basis. This is key for both accounting purposes and good corporate hygiene.
Your accountant cares about P&L and your balance sheet, so focus on those aspects.
This record keeping ultimately covers your back because, as a founder, you might be fiscally responsible for any potential liabilities that arise from losses to investor money if you aren’t able to prove that you did everything in the best interest of the company and investor funds..
You should also consider outsourcing your bookkeeping once they reach a certain volume and you should not try to do your own taxes because it can cause many issues especially with things like R&D tax credits not being possible to claim or not including forms that are needed which result in fines and penalties from the IRS even if the company isn’t profitable or even worse, complications during your next round.
A founder can handle a handful of transactions per month, especially during the early stages. But if you're doing 10+ transactions per month, you should hand the task over to an experienced accountant who understands the sphere.
And, if you’re considering bringing on an accountant, don’t wait too long.
Near the end of tax season, most accountants aren’t taking on new clients.