We strongly recommend that all clients complete a cryptocurrency stock take on 31 March 2024. This will ensure that you do not pay more tax than necessary. It also ensures the integrity of the financial statements and cryptocurrency calculations to ensure that no transactions are missed and every transaction is captured.
This article focuses on completing the stock take and recommended information and why it is important.
How to complete the stock take
On 31 March 2024 (or after you have made your last trade for the financial year), create a new Excel spreadsheet. List all the tokens that you own down on the page, and then across the page, write each exchange or wallet that you have. Complete the table with the quantity of each token you have at each address. For example:
It is also prudent to take a screenshot or print it as a PDF (including the date) of the token balance, which will provide evidence of the tokens held on that date. We do not require screenshots; we only require the list of tokens and their respective quantities owned. However, if IRD were to ask questions or an AML proof of wealth required at a particular time, the screenshots provide evidence of the token balances.
This is a process similar to non-crypto business. For example, on 31 March 2024, a non-crypto business will have a bank account. The bank statement from the bank has the closing balance of funds on that day. The difference with a bank statement is that it is easy to see the historical balance on any given day due to the bank statement, which is reliable. In cryptocurrency, there is no luxury of reviewing a historical wallet or exchange balance, let alone consolidating the holdings with other tokens on different exchanges or wallets.
Why is the stock take important?
As part of preparing cryptocurrency financial statements, we take all the trading information (from APIs and CSV files) or from Blockchain Explorer to analyse all the transactions. In a perfect world, if every transaction is captured, the closing calculated stock will equal your actual closing stock. However, this is rarely the case, especially where there is a lot of trading volume (by the number of tokens or exchanges, or transactions made), or we have situations like Cryptopia or FTX where we can no longer access trading records, or there are more complicated DeFi transactions, or new blockchains involved in which the accounting software doesn’t keep up to date with the fast-moving development. At times, the API can duplicate transactions, or the CSV files could be missing a period of trading activity.
We do not know what we do not know. If you have forgotten to provide transaction details about an exchange, we won’t know this (we do have a checklist to ensure we capture everything, but sometimes things are missed), and therefore, the closing stock provided won’t match the trading data we’ve received.
Therefore, the closing stock take acts as a security measure to check that everything is captured and completed. This ensures accurate reporting and is essential for financial statements, tax reporting, and compliance purposes. It also provides assurance that the financial statements accurately reflect your actual cryptocurrency holdings. Therefore, you do not pay more tax than necessary.
Contact Us
Contact Tim Doyle for a call or meeting to discuss any cryptocurrency tax or accounting questions. Our office is in Cambridge, Waikato, or we can arrange a video conference call.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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