One such firm is TaxBit, which provides cryptocurrency tax software products to exchanges, merchants and everyday traders. Based in Salt Lake City, Utah, the company today announced the completion of a $5 million seed funding round led by Winklevoss Capital, Global Founders Capital, Dragonfly Capital Partners and Table Management. TaxBit says it will use the money to build on its current products and expand into other regions, including Australia, Canada and the United Kingdom.
The company’s primary offering is a type of consumer software that it likes to refer to as the “TurboTax of crypto.” In an interview with Decrypt, Austin Woodward—CEO and founder of TaxBit—said that the company first launched the software in January 2019, just as last year’s tax season got started.
Woodward claims the tax software is easy anyone for anyone to use, even if they aren’t tax experts themselves. “The software will guide users through a two-step process to complete their taxes,” he said. “The first is for the user to connect their exchanges and transaction sources. This allows us to retrieve all a user’s transactional data and run it through our tax engine.”
The second step is for the user to click and download their completed tax forms. Woodward said a full monetary trail is retained so that a user—if audited—can easily see the math behind every calculation and verify accuracy. The user is then later given a full dashboard that summarizes their most important tax metrics.
TaxBit users can then upload all the relevant tax forms into whichever tax filing service they use (i.e. TurboTax, TaxAct, etc.) or grant access of the forms to their CPAs.
The three most critical things to be tax compliant are to:
1) properly report your transactions on an IRS 8949 cryptocurrency tax form
2) report your mining activity as ordinary income
3) be able to back-up your forms with an expert-backed immutable audit trail
— TaxBit (@TaxBit) January 6, 2020
“This saves users a lot of money from having to pay a CPA to calculate and file their crypto taxes by hand,” Woodward explained.
And it when it comes to taxation on crypto, global regulators aren’t playing games. In the United States, for example, the IRS recently said it would turn its attention to the many bitcoin ATMs in the country as a means of combating crimes like money laundering. The agency also issued new crypto tax guidance last October, which many legal experts decried as less than helpful. Other nations, such as South Korea, have also announced plans to begin taxing digital currency holders.
According to Woodward, crypto tax guidance is similar to that of stocks and equities. However, there are some complexities involved in crypto taxation that aren’t traditionally encountered through equities, which tends to make reporting a bit of a challenge.
“One of the complexities is the ability to swap coin for coin without going in and out of fiat currency,” he said. “Coin for coin trades create a taxable event that must be pegged back to fiat currency and reported on a tax return.”
Another problem relates to both forks and airdrops. It’s not uncommon for crypto users to receive new coins through either situation, thereby triggering unintended taxable events that require reporting.
In other words, it’s all pretty complicated—which might help to explain why Winklevoss Capital and other crypto VCs see a future in “crypto tax compliance” software.