NEW YORK (InsideBitcoins) — Not to get you all worked up here in the dog days of summer, but we all know filing taxes is never easy. And yes, it’s months before you have to face that grinding task. Unless of course you filed for an extension. Sorry to bring that up.
If you are a bitcoin believer, you may have delayed filing until you could sort through transactions and compute the damage. Now a long-awaited fix is in. Libra, a tax software startup, is moving to public beta for the individuals and businesses who face the excruciating chore of calculating their cryptocurrency tax liabilities.
The IRS proclaimed in March that digital currencies should be considered property for tax purposes. Now that the taxing authority officially has bitcoin and its little brethren on its radar, taxpayers are faced with manual calculations that could involve numerous transactions, multiple values and fractional shares.
Libra promises to automate the process by tapping into the bitcoin public transaction ledger called the blockchain.
Calculating tax basis instantaneously
“The blockchain is literally a list of every bitcoin transaction since the beginning of its invention,” Jake Benson, CEO and founder of Libra Services, told Inside Bitcoins. “By providing Libra a bitcoin address or multiple addresses, we immediately know every transaction that has ever been made with that address. It sounds like it would take a long time to sort through millions of transactions in a 20GB file, but for a computer the process happens instantaneously.”
Benson says all types of taxable events are computed, including income, gifts and donations. In real time, the software dynamically computes gains or losses by applying several optional cost-basis methods.
Taking the IRS guidance into consideration, short and long-term capital gains rates apply, depending on the asset’s holding period. Held for less than a year, the profit is taxed as a short-term capital gain – the same rate as ordinary income tax. Held for one year or more and the long-term capital gains rate applies – depending on your tax bracket, the taxable rate can range from 0-20%.
“However, when receiving coin from mining or as earnings, regular income tax applies — your income is the market value of the coin at the time you receive it,” Benson notes. “If the coin appreciates in value after receiving it, your income tax won’t increase, but a sale transaction would trigger a capital gain.”
A beta price
The software’s price is certainly no object – it’s free while in public beta. In September, the company will launch the 1.0 version in both free and paid editions. The individual rate will be $19, while “pro” and “enterprise” versions will be available with licensing fees based on usage.
“The software only handles tax calculations for digital currencies, so it’s a supplement to TurboTax, not a replacement,” Benson says. “We are working on integrations with existing tax software.”
The company is also developing a CPA affiliate program which links accounting pros with individual or corporate taxpayers seeking professional help.
Written by Hal M. Bundrick