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How to Find a Good Crypto Accountant

Key factors you should consider when choosing a crypto accountant, from their knowledge of blockchain and regulatory compliance to their experience with crypto-specific tools.

Bassil Eid

Dec 21, 2024

1. Do They Understand How a Blockchain Works?

A strong understanding of blockchain is essential for any crypto accountant. Blockchain isn’t just about cryptocurrency. It’s the foundation for all crypto transactions and activities. Ask your accountant the following questions:

Which blockchains are they familiar with?
Do they like layer 1s or layer 2s?
Do they themselves own any crypto on those blockchains?
Which blockchain explorers are they familiar with?
How do gas fees work on that particular blockchain?

We once had a client tell us they spent 30 mins explaining to their previous accountants about “Gas Fees” and their previous accountant billed them for this time. You can save significant time and money by finding an accountant familiar with blockchains.

2. Do They Understand Your Specific Business in Relation to Web3?

Your accountant should have a solid understanding of how your business operates within the Web3 ecosystem. Whether you’re building decentralized applications, launching tokens, or participating in DeFi, they need to understand:

The purpose of your organisation and why you’ve chosen to build it in the Web 3 ecosystem.
Your revenue model and how income flows within your business in relation to crypto.
Tax & VAT treatments for specific activities you’re undertaking like staking, NFT sales, and token generation events.
The financial implications of protocols and platforms unique to Web3.

Have a conversation with your accountant about your business and asking them questions about your activity to ensure they truly understand.

We onboarded a new client this year and did a handover with the previous accountant. The previous accountant had booked Gas Fees and Crypto Fees into the same account however Crypto Fees was revenue the client would generate and nothing related to Gas Fees at all. The accountant did not bother to learn about the business model for the client and booked everything under one account called “Fees”.

A crypto accountant who understands your business structure will provide tailored advice that aligns with your operational goals and won’t waste your time.

3. What Software Do They Use?

A great crypto accountant leverages modern software tools to simplify tracking and reporting. Ask about the tools they use, such as:

Crypto Subledger: Competent crypto accountants will not use excel to manage your crypto transactions. They will take a subscription with a crypto subledger tool like Breezing, Cryptio, Integral. These tools help automate crypto bookings into your main accounting system. There is an argument to say that if you only have a few transactions, excel is the most cost effective options. This was the case 2 years ago however subledgers have gone down in price and you can now take a subscription for only 35 USD per month.
General Accounting Tools: Be sure your accountant uses a web based accounting system like QuickBooks or Xero. For larger clients, you can opt for NetSuite if you want to perform financial consolidation of all your entities into one tool. You can also perform financial consolidation using Fathom from Xero and Quickbooks data and the reporting is more friendly.
AP & AR Software: To facilitate AP and AR, it’s always wise to use a solution like Hubdoc or Dext or if invoicing in crypto consider Acctual, Fractal or Request Finance. Some digital banks like Revolut or Brex have also an AP function embedded in them.

Your accountant’s familiarity with these tools ensures accurate data entry and faster turnaround times for reports. It’s also important for you as a customer to have access to these tools. Try to avoid any desktop applications otherwise you will be emailing constantly to pull reports when it’s only a few clicks away or if you ever want to transition to a new accountant or take the accounting in house, the migration is a bit painful.

We did a migration recently from a system called Abacus(Desktop application) to Xero (Web based) whereby the customer wanted all the raw data into Xero instead of just opening balances for the year. We had to format excels and it took quite some time.

Also, having access to these solutions will help you keep track of your accountant's progress without constantly bothering them. It also allows for a more collaborative approach, as you will be involved in the accounting process, especially in the early days.

4. How Have They Booked Crypto Transactions in the Past?

Crypto transactions can be tricky to record correctly due to the volatility, multiple transaction types, and shifting regulatory standards. Ask how they have handled:

Transactions involving exchanges, wallets, and peer-to-peer trades.
Staking rewards, airdrops, and token swaps.
NFT purchases and sales.

The accountant should have experience handling these transactions accurately and in compliance with tax laws. Again, a sub-ledger would greatly help ensure you capture each transaction, minimize your accountant's time spent on it, and reduce your overall bill.

We had a client come to us from a previous accountant whereby the previous accountants used blockchain explorers to collect crypto transaction data. The issue however is the previous accountant booked all the gas fees on every single transaction into the client’s financials. We had to explain to the previous accountant, in this case, gas fees only apply to outbound transactions and do not apply to inbound transactions.

This resulted in an adjusted booking in the new year as the accountant overestimated expenses for the client. It’s important to understand how your accountant not only retrieves crypto transaction data but also interprets it as in this case the accountant perceives all gas fees belonged to the client even on inbound transactions.

5. What Accounting Method Do They Use to Calculate Net Gain/Loss?

Ask your accountant which accounting method they use to calculate the net gain loss for crypto. In Switzerland and most jurisdictions, you need to calculate the net gain loss on outgoing crypto transactions which include paying vendors with crypto, swaps or trades, and liquidating crypto into FIAT.

We received financials this year where an accountant simply took the value of the crypto at year end and subtracted it from the value of the crypto at the beginning of the year. The difference, they pushed into the income statement.

If your accountant replies to this question with the above answer, it’s usually a bad sign. Your accountant needs to keep a cost basis for each crypto asset and when crypto leaves your wallets he/she needs to calculate a net gain or loss on that transaction and book it into the accounting system on the income statement.

Different accounting methods can lead to variations in your reported gains and losses. Ask your accountant which method they use and why:

FIFO (First In, First Out): Commonly used for crypto taxation and often preferred by regulators.
LIFO (Last In, First Out): Can minimize taxable gains in a rising market.
WAC (Weighted Average Cost): Can minimize taxable gains in a rising market.
Specific Identification: Tracks the exact coins sold to optimize your tax position.

In the U.S, it’s important to ensure your accountant is calculating net gain loss using per wallet method instead of the universal method. That simply means the accountant will keep track of costs basis and calculate gains and losses within the wallet instead universal tracking cost basis and calculating gains and losses across all your wallets and all your transactions.

Understanding your accountant’s approach will help you make informed decisions and stay compliant.

6. What is Their Preferred Communication Channel?

Clear and reliable communication is key to a good working relationship. Ask how they prefer to communicate:

Email: This is the slowest form of communication as you want real-time replies, especially to urgent topics. It’s still a channel to be used but ideally is not your main channel of communication with your accountant.
WhatsApp: This form of communication is better as it allows for real-time questions and answers. Your accountant is never blocked as he/she can ask you a quick direct question and your questions are also quite frequently answered.
Telegram or Discord: It’s a good sign if your accountant has Telegram or Discord. This creates a sense of assurance they are in the Web 3 space as these channels are quite common among crypto businesses. This is our preferred channel.

Ensure their preferred method aligns with your workflow to maintain effective communication.

7. Have They Serviced Any Web3 Clients in the Past?

Experience with Web3 clients indicates that the accountant is familiar with the challenges and opportunities in the crypto space. Ask for examples of:

Businesses or individuals they’ve worked with in the Web3 ecosystem.
Specific cases involving DeFi protocols, NFT marketplaces, or tokenized assets.
How they handled unique Web3 accounting challenges.

It is okay if you are your accountant’s first Web3 business as long as your accountant has a strong interest in the space as that would ensure a faster and more committed learning curve. To confirm that interest, your accountant should have crypto assets themselves. Ask them to share their wallets with you to see what activities they’ve been involved in.

8. If You Have Your Own Token, Ask Them How They Would Treat It From an Accounting Perspective

Token creation introduces unique accounting challenges. If you are issuing a token or have issued a token, be sure to ensure your accountant knows how to treat this. Ask your accountant:

How they would classify your token on the balance sheet.
The tax treatment for tokens held, sold, or distributed.
Ask them which classification of tokens they’ve dealt with in the past. Utility, payment or security tokens.
How they would price the token pre-launch? Post-launch?
Use acronyms like TGE and see whether they know what the acronym means.

It’s important to note tokens that are created by a foundation for example, are not activated until they are used. For example, a token could be used to pay out a vendor at which point it has a null impact on the income statement or perhaps the tokens are returned back to the foundation at which point a cost basis is activated on that token and should be recognized on the balance sheet. The key question to ask is when the tokens activate and your accountant should be able to answer.

Your accountant must be aware of these treatments, otherwise you raise the risk of being non-compliant.

9. If You Raised Funds Through a SAFT, Ask Them What a SAFT Is and How to Treat It From an Accounting Perspective

A Simple Agreement for Future Tokens (SAFT) is a common fundraising tool in the crypto industry. Ask your accountant basic fundamental questions about SAFT:

What does a SAFT stand for? You’d be surprised how many don’t know.
Understand what a SAFT is and how it works.
Know how to record SAFT-related transactions on your financial statements.
Advise on tax implications and reporting requirements.

We had a set of financials given to us 2 years ago whereby a previous accountant converted a SAFT from liability to equity. The token for that client was a utility token but the accountant treated the SAFT the same way he would treat a SAFE.

SAFTs are typically recognized as deferred revenue and then recognized as revenue as the project development progresses over time. The TGE would then trigger additional bookings around token delivery costs and capital gains that need to be booked.

It is fundamental your accountant understands the differences between SAFE and SAFT but also the different legal opinions that could classify a token (Utility, Payment, or Security). Otherwise, there will be inconsistencies in the accounting entries.

10. Ask Them If You Should Pursue a VAT or Tax Ruling

Depending on your jurisdiction and business model, pursuing a VAT or tax ruling can provide clarity on your tax obligations and ensure future audits do not come back to haunt you. Your accountant should:

Assess whether your activities qualify for VAT or other tax considerations.
Know experts who have close ties with the authorities who can assist with drafting compelling tax ruling
Help you prepare and submit the necessary documentation

We typically pursue VAT and tax rulings for entities that have launched or planning to launch their own token. We also pursue tax rulings when a project receives a large grant from a big protocol.

We recently had a project that received a large token grant and started to liquidate this past month. Due to the crypto market appreciation, that grant, when liquidated produced a lot of capital gains which are subject to taxation.

Therefore, we prepared a ruling to recognize the capital gains alongside the tenured grant agreement which is 4 years instead of recognizing all those gains this year and facing a large tax bill.

11. If You Receive Income Via Rewards, Ask Them If There Are VAT Implications

Crypto rewards from staking, mining, or airdrops may have VAT implications depending on your location. Your accountant should:

Assess whether these rewards are subject to VAT.
Advise on proper reporting and payment of VAT, if applicable.
Help you structure your activities to remain compliant while minimizing liabilities.

In general and depending on jurisdiction, crypto rewards are not subject to VAT if they are classified as income from financial services. This applies in cases like:

Staking Rewards: Rewards for staking cryptocurrency on a public blockchain are generally considered income from a financial service. There’s no direct identifiable customer; instead, the rewards are generated by the blockchain protocol.
Mining Rewards: Mining rewards are typically exempt from VAT because they’re considered protocol-generated and not provided for consideration by an identifiable counterparty.

In Switzerland for example, crypto rewards are subject to VAT if they are earned as payment for a taxable service provided by your business. This includes:

Rewards for Services Rendered:some text
- If your business provides a service and receives cryptocurrency as payment, VAT applies just as it would if the payment were in fiat currency.
- For example:some text
  - Providing IT services, such as smart contract development or running a private validator node for a specific entity.
  - Facilitating transactions or managing platforms that pay you in crypto.
Reward Value in CHF:some text
- VAT is calculated on the market value of the cryptocurrency at the time the reward is received, converted into Swiss francs (CHF).
Domestic vs. Exported Services:some text
- Services provided to clients inside Switzerland are subject to VAT at the standard rate (currently 7.7% for most services).
- Services provided to clients outside Switzerland may qualify as exported services and are zero-rated (0% VAT).

As you can imagine, the challenge would be to identify what is domestic and what is exported. We have in the past worked on VAT rulings whereby we take Swiss GDP vs World GDP and that ratio is used to identify the amount which is VAT liable among all staking rewards earned.

So if a validator generates CHF 100 million in staking rewards and he has obtained a tax ruling that 1% of its rewards are deemed Swiss-sourced income then CHF 1m (1% of CHF 100m) is VAT liable and he would pay VAT of CHF 81k (8.1% of CHF 1m).

In Switzerland for example, a court decision in August 2023, was released to distinguish between block rewards and transaction fees so it’s also important your accountant stay updated on VAT regulations.

12. Can You Get an Estimated Quote?

Budgeting correctly is important for each crypto project therefore it is important to get an estimated quote from the accountant. This will also help you assess whether the accountant asks the right questions to put together a quote tailored to a crypto project. Your accountant should ask you for the following items in relation to crypto:

How many wallets do you have?
Share your bigger wallets if not all wallets
How many exchanges do you have?
How many transactions are in the exchanges?
Do you have crypto invoices? If so how many?

Then there are the other non-crypto related items that help with quoting such as how many bank accounts and transactions, how many are on the payroll, do you need VAT filings, how many FIAT invoices, credit cards, etc.

Based on those details, the accountant should give you an estimate which will be between 5-20% of the final costs you’ll pay. Be wary however of lowball estimates. Some accountants will lowball an estimate to get you to sign up with them and a few months later increase the price. At that point, if the service you’re getting from the accountant is great and the scope did change, then I would suggest you reach a compromise on price that satisfies both parties.

Sometimes accountants truly misquote and as long as the service is of top quality stick with them. If the service however is bad, then do not be afraid to walk away and invest time in another accountant.

13. What is the Onboarding Process like?

A good onboarding process is essential to ensure you save time in the long run. Ask your accountant what his onboarding process looks like. This is a typical pattern we follow.

Information Gathering - We ask clients for a detailed overview of all bank accounts, credit cards, wallets, and exchanges.
Filings - We ask them to send us all previous filings such as VAT, tax, and others.
Onboarding call - We schedule an onboarding call for 1 hour
Systems - We set up all key systems like Xero, Breezing, Dext, and others.
Crypto Balance sheet - Based on the crypto transaction, we set up the balance sheet based usually on a wallet view but a token view is also optimal. We also add in asset and liability accounts for certain crypto activities like if they are in liquidity pools or have issued a SAFT.
Billing email - We set up a billing email and forward those emails to Dext automatically.
Cadence - We agree on a cadence of how often the financials should be prepped. If they need VAT, we do a mandatory soft close quarterly. If not, it’s really up to the client but yearly is a minimum.
Weekly Check-in - At the beginning during the setup, do a weekly check-in to ask questions about the business and get details on transactions.
Payroll - If there is payroll, we invite employees to a payroll software or ask for their details from the previous provider. We check in before we run the first payroll.

These are some of the key onboarding steps we follow to ensure a smooth ongoing process with the client.

Final Thoughts

Finding a great crypto accountant can save you time, stress, and money. As crypto adoption grows, the demand for qualified crypto accountants will only increase. By looking for specialized knowledge, relevant experience, and a proactive approach, you’ll be well on your way to building a solid financial foundation in the crypto space.

Take your time, ask the right questions, and invest in a professional who can navigate the complexities of cryptocurrency accounting. Your financial future will thank you for it.