Transforming the World Wide Web is its third generation Web 3, which connects internet users in real-time and controls information and big data. While the first generation (Web 1) provides information, the second energizing generation (Web 2), focuses on data overload. All the worldwide web generations utilize technologies and have different uses, but Web 3 is quickly advancing with phenomenal technologies and features.
Since 2012, the evolution of blockchain, or a decentralized distributed ledger for digital assets, has been changing the internet resulting in tax and accounting complications. We have the metaverse that allows internet users to experience virtual reality (VR) and augmented reality (AR) in the digital and physical world. It creates a virtual environment for investing in decentralized finance tokens, shopping, gaming, building wealth, socializing, and entertaining with opportunities for its users. Acquiring accounting and tax services may be necessary for companies and individuals to record decentralized finance transactions accurately in preparation for the inevitable duty of reporting to the IRS.
Examples of this advancing technology include the metaverse, which allows internet users to experience virtual reality and augmented reality in the digital and physical world. This technology has also created a virtual environment for investing in decentralized finance tokens.
Also referred to as DeFi, decentralized finance tokens are a class of financial products that are built on blockchain, and are a subset within the larger cryptocurrency space.
Finding a trusted CPA to assist with tax and accounting services may be necessary if you find yourself dealing with decentralized finance transactions that you’ll eventually need to report on your tax return.
I reached out to the Fusion team and within about a week they got me onboarded and started managing my company’s books. Now I’m able to spend more time with my family and friends, and not wake up in the middle of the night worrying about whether I categorized last month’s expenses correctly or if I filled out the right tax forms. The Fusion CPA team is truly the best.
Web 3 is the next generational world wide web comprising advanced technologies with features including:
While still in its early stage, decentralized finance regulations and laws may be relevant for accounting and tax purposes involving cryptocurrencies. Transactions involving Web 3 crypto tokens on blockchains and exchanges may eventually result in tax consequences and penalties if left unreported to the IRS. If left unaccounted for on your financial statements as a publicly-traded company, the omission of Web 3 transactions could be ruled an SEC violation.
At Fusion CPA, our Web 3 accountants specialize in the following:
Proper classification of digital financial assets and transactions can be challenging because of the following:
Accounting software integration may help reduce the burdens of decentralized finance tax and accounting for companies, investors, and investment management firms. To be able to accurately classify NFTs, the metaverse coin, and other crypto-assets, it may be beneficial to work with a specialist CPA that has experience in evaluating economic purpose, right, and liabilities. Knowing how an asset derives its integral value is another part of the evaluation process to classify crypto assets that could have an impact on your financial and tax reporting.
Different laws and factors may come into play when accounting for Web 3 affiliated transactions. Businesses and investors can benefit from the services of an experienced CPA knowledgeable of FASB accounting guidelines for Web 3 currencies and to aid with putting in place accounting software and processes to track and report on these types of transactions.
If you are holding Web 3 tokens as a capital asset and not engaging in a trade or business selling of crypto tokens, IRS published FAQs on Virtual Currency Transactions. Publications, including 525, 526, 544, 551, and 561, provide more information about the general tax principles that might be applicable to web 3 digital currencies. Partnering with a reputable and experienced CPA can help businesses and individuals to identify taxable and nontaxable income applicable to Web 3 affiliated currency.
Our team of CPAs can help your business with the following Web 3 related services:
Accounting Software Integration for Cryptocurrencies is a service provided by crypto controller professionals to cryptocurrency companies. Options for accounting software incorporating crypto integration technology include Legible, CoinTracker, and SoftLedger. Integrating Legible in your tax software may be beneficial for advanced reporting and tax preparation, while CoinTracker tracks cryptocurrency investments, taxes, and performance.
Accounting for Fiat Money is a business advisory service that accounts for fiat money transactions. Whereas cryptocurrency is a decentralized digital currency, fiat money is a centralized currency controlled by the central bank. Examples of fiat money are the US dollar, British pound, Euro, and other international currencies. Determining the value of fiat money is based on supply and demand, government stability, and the national economy. Fiat money has usefulness for purchases and in the investment industry for purchasing stocks and other securities.
Cryptocurrency Accounting is a service offered by a controller in determining how to account for transactions using accounting guidelines for web 3 currencies. When selling an item using cryptocurrency, including nonfungible tokens or digital cryptos, you may be liable to pay taxes on capital gains. Businesses and investors may need this service to report cryptocurrency taxes on federal income tax returns when exchanging the crypto token for the US dollar.
DAO (Decentralized Autonomous Organization) accounting is a financial service for reporting to the Internal Revenue Service and the Securities & Exchange Commission. Relying on services includes influential individuals, investors, businesses, and non-profit organizations. If you have cryptocurrencies, such as Bitcoin or Doge in an investment portfolio, DAO accounting and tax guidelines may be beneficial to you when it comes to federal income tax reporting.
Tax compliance of NFTs is a business advisory service for nonfungible tokens used to sell or purchase a digital asset, such as a piece of art, virtual land, music, and more. Selling or buying digital assets may have tax consequences for the sellers and buyers that might require reporting to the IRS.
Our CEO, Trevor McCandless, expands on what to expect when working with an outsourced eCommerce CPA
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