Besides creating an opportunity for rapid wealth accumulation, cryptocurrency also serves a practical purpose. It provides a stable currency for people living in parts of the world with volatile governments and economies.
Cryptocurrency tax protocols are hard to make sense of, but TokenTax’s Zac McClure and Arthur Teller are used to finding creative solutions and answers.
While younger generations are more likely to dive into digital currency investment opportunities, it’s not exclusive to tech-savvy youth. Zac and Arthur see people of all ages eager to play the cryptocurrency game.
At first glance, video games and agriculture may not have much in common, but TokenTax’s Arthur Teller and Zac McClure know otherwise.
Their company, TokenTax, a cryptocurrency tax software platform and fully-fledged accounting firm specializing in digital currencies, recently explored solutions to their latest conundrum: how do you identify appropriate tax treatments for video game players?
Axie Infinity, a video game that uses Ethereum-based cryptocurrency, has recently taken on a cult-like following. “People are making millions and millions of dollars playing the game,” explains Arthur. Some even play the game full-time as their primary source of income.
The game involves breeding and battling Pokémon-like characters. The players’ digital livestock may look like cute animations, but they’re actually non-fungible tokens (NFTs) that can be cashed in for digital currency.
The TokenTax team looked to agricultural tax policies for guidance. “These rules may be the closest thing we have to being able to answer these questions,” Arthur remarks on a recent episode of The Accounting Leaders Podcast.
The exercise serves as just one example of the creative thinking that Arthur and Zac embrace when working in the new and constantly evolving world of cryptocurrency.
Zac, the co-founder of TokenTax, recently brought on Arthur, a college friend and seasoned CPA, to serve as COO of the growing company that strives to make cryptocurrency accounting less complex.
Zac and Arthur join Stuart McLeod, CEO of Karbon and host of the Accounting Leaders Podcast, for a deep dive into cryptocurrency and how the technology is changing the finance landscape.
Zac first understood the inequities of wealth acquisition when volunteering to teach a personal finance course to inner-city youth. During this time, he quickly realized that most people weren’t financially literate.
The experience inspired Zac to join Teach for America to teach math rooted in personal finance. Eventually, he ended up in Zimbabwe, helping to implement a social enterprise business, World Bicycle Relief.
It was in Zimbabwe, of all places, that Zac was first introduced to Bitcoin.
“They don’t even have their own currency,” Zac says on the podcast. “So people were using M-Pesa, phone credits, and digital currency long before I knew about it. And I was like, ‘Wow. This makes so much sense over here.’”
Zac knew he wanted to get involved in cryptocurrency, but it wasn’t until he met TokenTax co-founder Alex Miles that he had the opportunity. At the time, Alex was beta testing what is now TokenTax’s software. Zac saw the possibilities and wanted to use the software to make a big impact.
“Let’s teach people how to track their tax loss. Let’s teach people about tax-loss harvesting. Let’s infuse it with personal finance. Let’s democratize access. If we build a software platform, we can help any investor in crypto and teach them all these things.”
The company launched in 2017 as part of the Product Hunt Global Hackathon, where it won first place overall. From there, using the prize money to bootstrap the company, TokenTax took off.
“When we started, the IRS had one paragraph of guidance,” laughs Zac.
The landscape has slowly changed, though the rollout of guidance is intermittent. As a result, many cryptocurrency investors are still left guessing how to file taxes and claim their assets properly.
“We started just working with individuals, figuring out really difficult crypto tax situations,” Zac explains. “And then so many of our clients would say, ‘Hey, I’m just a student, and I have a W-2 or no other income, but really complicated crypto. You helped me solve that, but now my CPA wants $2,000 to understand what you did.’ So we just organically started offering tax services as well.”
In 2018, TokenTax acquired an accounting firm and started to add CPA tax filing to its services.
Although cryptocurrency existed for years with little to no taxation guidance in the U.S., Arthur believes that the IRS is ratcheting up enforcement.
A lot of growing pains come with the IRS’s attempts to keep up with a financial technology that’s rapidly gaining in popularity. Unfortunately, this intimidates many looking to invest in crypto.
“Even if you’re a diligent, law-abiding citizen, you could still very easily go wrong,” Arthur explains.
Having a CPA who understands the nuances of cryptocurrency is essential to getting it right.
Recommended resource: Understanding blockchain for accounting firms
For Zac and Arthur, the idea of democratizing wealth and evening the playing field is thrilling.
“One of the most fascinating things about [cryptocurrency], particularly coming from the business tax world, is the extent to which wealth just sort of materializes out of nowhere.”
TokenTax has clients who had never made more than $20,000 a year before investing in cryptocurrency. Now their net worth is in the seven, eight, even nine-digit range.
“They’re deer in the headlights about it,” chuckles Arthur on the podcast. On a more serious note, he adds, “I think [some of these people] are realizing that there’s a reason lottery winners, on average, are less happy after winning the lottery.”
It’s a form of rapid wealth accumulation that comes with benefits as well as challenges. For one, Arthur believes it shifts power dynamics within society.
Still, in spite of this, he believes in cryptocurrency as a force for good in unlocking massive opportunities.
There are two groups in particular that are positioned to benefit from the new form of currency:
Citizens of nations with unstable economies and political environments
Younger tech-savvy generations
In June 2021, El Salvador announced at the annual Bitcoin conference that it had officially started to accept Bitcoin as legal currency.
It’s a trend that the nation’s leaders believe will spread, particularly in countries where politicians are prone to inflate away family fortunes. The countries that have been the most progressive about cryptocurrency are those that need it: Cuba, Zimbabwe, and Argentina, to name a few.
“There really is a need for a stable currency in a lot of places in the world,” Zac explains.
Besides offering stability, cryptocurrency has also become an alternative means of generating wealth—something that’s especially enticing to millennials and younger generations.
“The old system of, ‘Hey, you can get a job, and if you just do the right things and show up every day and work hard, it’ll all be OK’—that system, I think, is being proven to not be valid anymore,” says Zac.
Arthur’s quick to add that not all cryptocurrency investors are young people, though. “We definitely see some folks in the older generations jumping in and playing with the best of them,” he says.
For Zac, equity has always been part of the conversation.
“The core issue of a lot of these situations is that personal finance skills are not widely known in the U.S.,” he says. “We don’t teach people about compounding interest and the impact of credit cards. Arthur and I often joust about who benefits from a country where a hundred million people live paycheck to paycheck.”
A passion for educating and equalizing isn’t limited to Zac; it’s also infused into TokenTax’s philosophy.
“No matter what plan you sign up for, you get a tax-loss harvesting package, and we teach you these things that only people who have Merrill Lynch accounts and are private wealth managers or hedge fund managers actually do,” he says.
Perhaps it’s the teacher in Zac, but he’s committed to ensuring that TokenTax clients have the financial tools they need to succeed.