Remember when we wondered whether someone would develop a service to help you keep track of the capital gains on bitcoins? Well, now it turns out that someone has – or, at least, wants to. Libra is a new venture that claims it can help you to keep the IRS happy.
Launched by Jake Benson, a former SAP HCM Consultant for Cap Gemini specialising in US and Canadian payroll, the service wants to enable individuals, small businesses and large enterprises alike to comply with the new IRS regulations.
The IRS notice, announced March 25th, carries significant implications for people using bitcoin, even if they are regular users, rather than investors.
Under the guidance, people spending bitcoin are liable to declare capital gains on any increase in value on those coins. That means if you purchased one bitcoin in early October at $100 and spent it today at $440, then you’d be realising a capital gain of $340.
To add insult to injury, because you hadn’t held onto those bitcoins for more than a year and a day, that capital gains tax would be short term, making it equivalent to ordinary income tax. Investor holding onto their coins for longer than that period, however, will pay the long-term rate of 15%.
‘Critical issue’
Of course, people don’t always spend one whole bitcoin at a time. Instead, they’ll acquire and spend portions of a bitcoin over time. That means that technically, they have to keep track of lots of bitcoins that gained different amounts of value over different time periods.
Members of the bitcoin community are unhappy enough about the guidance to have filed a petition about the new guidance.
“Arguably, this is one of the most critical issues surrounding digital currencies,” Benson told CoinDesk. He added:
“When I noticed several months ago there was no comprehensive solution to address taxes, I knew it was an opportunity. Tax software might not be the sexiest business in the industry, but it is the most essential right now.”
Benson, who graduated from the University of Texas with a business degree in 2011, wants to cut through the whole tangled mess. Libra will start by obtaining transaction history for an individual, which he says can be done through automatic and manual means.
Simple solution
Then, the service will calculate the cost basis on a per-transaction level, before distinguishing between transactions subject to short-term or long-term capital gains.
Benson explained:
“Then, we output the calculated totals, and direct the user to which box to fill in on which tax form – we may even provide automatic form output for ultimate convenience.”
He is hoping to do the whole thing in a minimum of four to five clicks for tax novices, and longer term, wants to integrate with other tax software, including the big consumer titles, but also enterprise ERP systems.
The service will be able to handle book keeping retrospectively, so that people can refile for previous tax years if their bitcoin transactions extend back that far.
Extension ‘advisable’
The problem for bitcoin users today is that the tax filing deadline for the IRS is next Tuesday, and LibreTax won’t be launching its service until the third quarter.
Theoretically, this means that bitcoin users would have to do a lot of their paperwork themselves in the next few days, if they wanted to stay within the law by following the tax guidance. But Benson has an alternative, he said:
“Libra for individuals will be ready in the September timeframe. That will be right in time for the extended tax deadline, so we advise everyone to file for an extension this year.”
Future plans
In the meantime, Benson will be working with an initial round of seed capital from CrossCoin Ventures; his being the first company to be accepted by the Ripple Labs-funded accelerator program.
In time, he expects Libra to become a broader tax reporting tool, as many different stores of value from fiat through to cryptocurrencies become digitized.
Explained Benson:
“Imagine being able to automatically populate your income, itemized deductions, business expenses, etc, straight from the ledger – no matter what kind of currency was used! I see a tremendous amount of potential here.”
The service is purely for tax purposes and doesn’t include its own wallet yet, Benson concluded – although it would be a logical next step, he added.