Crypto Tax 101: Clean Up
Advising crypto projects on tax issues can sometimes feel like being back in law school, wrestling with your professor’s brainteasers—but with much higher stakes. For instance, when a DAO that may or may not have any contractual relationship with an entity generates income, whose income is it? Or when an investor, based on a handshake agreement, transfers BTC to a wallet before any entity is created, what just happened? And when a project’s token treasury is under the collective control of a DAO’s members, who owns the treasury? Is it an entity or individual members spread across multiple jurisdictions?
These are the sorts of questions that can haunt successful crypto projects which never had time—or the right advice—to set things up cleanly. In the rush to launch, documents and agreements often get overlooked. Sometimes projects only get the funding to get proper advice after the fact. And in many instances, the team simply doesn’t realize the importance of proper legal and tax planning until the project is already in full swing.
Plan ahead – it’s good advice. But despite our best intentions, it doesn’t always happen. It’s never too late to clean things up, either. Granted, your options are fewer when you’re acting after the fact. Yet it’s far better to document what you can and make the best of your situation now, rather than wait for an audit—or perhaps even worse, wait for an investor or buyer to uncover the problem during diligence. Working in crypto requires flexibility and quick thinking, and that includes dealing with tax issues proactively once you see them on the horizon.
