How Web 3 Companies Can Prepare for the
2022 Tax Year
It wasn’t a rival or a policeman but the IRS that took down
Chicago’s most famous gangster. Al Capone was convicted of
tax evasion after boasting “they can’t collect legal taxes from
illegal money” and sentenced to 11 years in Alcatraz jail.
Everyone’s fears and stresses around tax time are magnified
by this case.
Tax time is a nightmare for web 3 companies.
Everyone finds this time of year stressful. Companies using
cryptocurrency as money suffer more as crypto is not
currency in the eyes of the IRS. The IRS considers crypto,
including NFTs, to be property.
The Difference Between Tax Prep for Fiat vs.
Crypto for Companies
The fact the IRS considers crypto property makes this tricky.
They want ALL the information below.

The date you received the cryptocurrency.

A description of which crypto was received.

The USD value of the crypto payments at the date and
time of receipt.

The number of units received, sold, or exchanged.

Crypto fees paid.

The fair market value of the cryptocurrency on the date
used if you used it to pay business expenses rather than
exchange it.

The transaction cost for which you were paid, and what it
was your customers paid for using cryptocurrency.

If you pay employees in cryptocurrency, you’ll need to
report the fair market value of the cryptocurrency on the
date each payment was made so you can accurately
report compensation on W-2 forms at the end of the year.

Whether the required disclosures are sufficient and
adequate. Do they paint a clear picture of the company’s
strategy regarding its use of crypto for users of the
financial statements? Can a reader of the financial
statements piece together the information to understand
the use of crypto in the business?

Each time you buy and sell crypto, you are subject to
capital gains tax.
Tax time for a web 3 company is a mess.
That is one of many reasons the founders of Starlight founded
their company. They intended to start another company, but
found so much friction around opening an institutional
account on a major exchange, that they decided to create the
company they needed. One platform where companies can
manage all their crypto activity.
This makes tax time, which otherwise is a wild goose chase, a
case of logging into Starlight where your crypto related
business activity is tracked.
3 Steps to Prepare for the 2022 Tax Year as a
Web 3 Company
“The government’s view of the economy could be summed up
in a few short phrases: If it moves; tax it. If it keeps moving,
regulate it. And if it stops moving, subsidize it.” Ronald
Reagan
1. Go through your crypto activity and
highlight every transaction
Crypto obviously does not produce bank statements.
So, its important to maintain all transaction-level detail. The
company will need to supply that information to the IRS. You
will have to keep track of every time you received crypto, sent
it and sold it.
If you converted the crypto you received for payments into
fiat immediately, the process is easier.
You are paying tax for regular business income. When you
earn money between the time of sale and the crypto-fiat
conversion, you need to pay capital gains tax. If you lose
money, which was more likely in 2022, you can summarize
your deductible capital losses on Schedule D for Form 1040.
For more information on reporting crypto losses to the IRS,
read here.
2. Join Starlight’s early access now
Starlight is an end-to-end place for web 3 companies to
manage their crypto holdings for all uses and purposes.
If you have a quality team building high-quality products in
Web 3, you should qualify. Sign your team up for early access
and you can track your spending going forward, among many
other things. You can connect your company’s bank account
and get access to more than 76,765 cryptocurrencies and
tokens. It also takes care of the invoicing and record-keeping
procedures.
You can buy and sell crypto for the balance sheet of your
company using Starlight.
It takes several months to get approved as an institutional
account on Coinbase or Gemini. Another disadvantage of
these companies is that they cannot provide services to
everyone. Depending on the type of company and your
jurisdiction, you may not be eligible for these services.
Spotlight is the best option. Remove the complexity of tax
season for your web 3 company.
3. Hire a local tax professional
Each country has its own crypto tax rules.
Some countries, like the USA, take a conservative approach,
while others, like Portugal, incentivize crypto use. Depending
on your country, there may be different tax rules for selfemployers, corporations and small businesses. Hiring a local
tax professional is highly advised.
States have different tax rules too. Colorado is the only state
which accepts crypto for tax payments.
Sign, Harlingen, Texas. 1939. Photographer Lee Russell
Useful Information
Check out Cointelegraph’s business tax guide for good tips.
Wages
Wages paid using crypto must be reported by employers and
are taxable to employees.
They are subject to federal income tax and payroll taxes,
based on the fair market value of the crypto. Crypto payments
made to contractors are taxable as well. The rules for the selfemployed apply.
Crypto As Payment for Expenses
By using cryptocurrency for payments, the company is now
deploying non currency assets, in the eyes of the IRS, in a
currency-like manner.
• Your company must inform the tax department any gain or
loss brought on by volatility in your use of crypto.
• Your company needs to provide further reports to explain
the accounting of the crypto transactions.
• Your company must adjust its cash-flow statement for the
crypto, which are noncash payments
A taxable gain or loss will apply, depending on whether the
fair market value of the cryptocurrency exceeds or is less than
its adjusted tax basis.
Transaction Fees
They are considered expenses, just like processing fees. The
fees will reduce your cost basis.
Final Conclusion:
“The only difference between a tax man and a taxidermist is
that the taxidermist leaves the skin” Mark Twain
How stressful tax time is depends on you.
You can get Starlight to support you and make life easy. If
your company has ambitions of being the next Uniswap or
Opensea, then every bit of support is needed. Otherwise, you
have to go through all your past years crypto transactions.
For the 2023 tax year, if you are adamant about not
outsourcing this – it is advised you convert your crypto to fiat
immediately to make your tax life easier – if you are not
holding the crypto for strategic reasons.
The complexities of using crypto as money when it comes to
taxes are apparent. Unfortunately, until now there hasn’t been
many options. Now, you can sign up for Spotlight early access
for a limited time only. The two best bits of advice are to 1.
Sign up for Spotlight early access and 2. Hire a local tax
professional. Click here to sign your team up for Starlight.