Learn how the digital wave of compliance automation could be the future of the crypto industry.
Cryptocurrencies are one of the most popular trading instruments loved by tech stack professionals, financial game players around the world, and of course, the billionaire CEOs of tech-based companies [1], [2], [3].
Crypto was not as popular a few years ago as it is now. However, the digital currency gained momentum as blockchain technology evolved through the years.
The following will discuss in brief cryptocurrency, the regulatory requirements of crypto, and how the crypto industry could benefit from a compliance automation infrastructure.
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency with a representative value. It can only be accessed through certain blockchain technologies and other look-alike encrypted technologies. The mined crypto “coins”, such as Bitcoin or Dogecoin, or Ethereum can be converted into cash by the trader through third-party brokerage services.
Unlike stocks or shares that have a centralized regulatory approach, cryptocurrencies operate with a decentralized approach, wherein the person who trades with crypto cannot be identified by authorities. The transactions cannot be monitored either. However, the regulatory bodies within the U.S. are paying attention to these regulatory gaps citing AML/TF concerns.
It is essential to note that cryptocurrencies, though not as sternly regulated by the federal authorities, are still taxable. They’re treated as physical properties and must be reported to the IRS.
What Are The Tax Reporting Requirements For Cryptocurrencies?
Cryptocurrencies are not exempt from taxes. Anyone who trades and engages in crypto exchanges must comply with the tax reporting guidelines issued by the IRS. Form 1099-K, 1099-B, 1042-S, and Form 5498 must be used appropriately to report the crypto purchases, exchanges, sales, third-party settlements, and other transactions. Do note that the much-awaited Bipartisan Infrastructure Bill of the U.S. aims to bridge certain regulatory gaps within the crypto industry and help the traders and third parties to comply with the IRS. The move will accelerate user identification procedures and leave no room for corrupt practices and tax evasion.
Impact Of Digital Compliance Automation On Crypto Entities
If the recent years have shown us anything, it is that the crypto trends are moving upwards with enthusiastic investors from around the world. This calls for streamlining the user identification procedures and optimizing KYC processes.
As the volume of the transactions and the funds transferred increase, the risk also increases. At this stage, the crypto industry could benefit massively with an organized identification framework that recognizes and verifies the users.
A digital compliance automation infrastructure allows the crypto industry to retain control over its investor data, identify and verify the users, prohibit the suspicious activity, ascertain in AML efforts, and help the law enforcement trace potential money launderers and terror funding personalities.
How Automation Helps With Crypto Reporting?
Crypto trading is easy. The simplified digital experiences of crypto applications are some of the reasons why crypto trading platforms gain so many users and investors. When the subject of regulation comes in, many tend to assume that the user experience has to be compromised to meet the requirements.
However, digital automation technologies have evolved in the past few years, making way for convenient regulatory integrations for crypto platforms and applications. There are several identity verification solutions in the market that can be customized per your UI funnels. Further, these solutions do not change your digital experiences drastically, helping you achieve performance and regulatory compliance at the same time.
Tax1099 For Seamless Crypto Tax Reporting & Automation
Tax1099 is one such tax compliance automation platform that allows your crypto entity to verify the tax details of the users per the official records of the IRS.
A slight addition like this to your customer onboarding process will help you avoid high-risk profiles, prevent money laundering, maintain accurate records of transactions, manage your tax reports, and comply with the IRS seamlessly.
With TIN Matching API, you can further ensure that all transactions are reported accurately with verified tax details of customers, vendors, and third parties.
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