With new IRS guidance on taxing crypto-currency trading, it can be a bit complicated for Bitcoin enthusiasts to figure out how much capital gains and income tax they owe.
Losses and gains are subject to a capital gains tax, which means you have to remember Bitcoin’s valuation at the point you bought the currency and at the point you sold it. That leads to a complicated year-round exercise in bookkeeping.
Then, people that mine their own Bitcoins face two different kinds of taxes: one is an income tax based on the fair market value of the currency when they mined it. The other is the capital gains taxes on any changes in the valuation of that currency once they sell it.
This, of course, makes for a nice market opportunity for someone out there to create something like TurboTax for Bitcoin.
Enter LibraTax, a fresh startup that lets individuals and businesses keep track of their earnings from Bitcoin, Ripple and other crypto-currency related transactions.
“The new IRS rules create this huge accounting nightmare,” said LibraTax founder Jake Benson. “You not only have to realize gains and losses, but you have to remember what you paid originally for the Bitcoin.”
LibraTax automatically retrieves a person’s historical sales and purchases of Bitcoin from the blockchain, or the public ledger of transactions, and reconciles them with whatever the value of Bitcoin was at that time. It should work with transactions that even date back to earlier years in case people who filed tax returns want to make amendments.
The company is aiming to have a two-tiered model, with one kind of software for consumers that should largely be free unless they want premium services like additional wallets. They’re also looking at a model that will target tax professionals and accounting firms, who will pay a licensing fee and can join an affiliate program. They are also in the process of building a product suite for small businesses.
LibraTax has funding so far from accelerator CrossCoin Ventures, which is associated with the crypto-currency Ripple.