Cryptocurrency taxation software startup TaxBit has announced investments from Coinbase Ventures, PayPal Ventures, and Winklevoss Capital.
The firm provides a platform for automated tax reporting for both cryptocurrency users and companies.
Thanks to their legal status as property in the US, every time an individual spends or trades a cryptocurrency, they’re potentially triggering a taxable event. Adding to potential confusion are crypto-specific, income-generating concepts such as staking, mining, and airdrops.
TaxBit Receives Major Venture Backing
As a dynamic and ever-changing industry, it can be difficult for cryptocurrency users to know exactly what their tax obligations are. Coupled with the somewhat shadowy nature of various aspects of the industry, this has previously led to widespread underreporting of cryptocurrency activity to tax authorities.
Hoping to alleviate the headache of paying crypto tax is TaxBit. The startup, founded in Salt Lake City, Utah, provides automated taxation software to regular cryptocurrency users and companies alike. Existing clients include BlockFi and Gemini.
According to a press release published Thursday, TaxBit has attracted venture funding from Coinbase Ventures and PayPal Ventures. The firm also received additional investment from previous backers, Winklevoss Capital. The totals invested are unknown at present.
The CEO and founder of TaxBit, Austin Woodward, commented on the recent funding:
“This investment will help us achieve our aim of being the most innovative and trustworthy provider of cryptocurrency tax technology.”
Effective Digital Currency Taxation Automation Likely to be Popular
With 24/7, hugely volatile markets, some traders make numerous buys and sells every day in the crypto markets. Each time a trader buys or sells one cryptocurrency for another, they may be triggering a taxable event.
As cryptocurrency trader Scott Melker alluded earlier this month, accurately reporting such activity over the course of a year is a serious undertaking:
My accountant hates me today.— The Wolf Of All Streets (@scottmelker) January 5, 2021
However, it’s not just high volume traders that need to worry about accurate tax reporting. As BeInCrypto reported last August, the IRS wants to know about any cryptocurrency activity during a given reporting period.
Confusing matters further is that various cryptocurrencies and their protocols allow for the generation of passive income via staking and other incentive structures. Then there’s the issue of cryptocurrency hard forks, which again, can yield taxable income for a holder of a given digital asset.
Regulation is often slow to move, and, of course, it lags a long way behind the ever-evolving crypto industry. This makes reporting tax even trickier for the digital currency user who wants to stay compliant.
With investments in TaxBit, big names like Coinbase, Gemini, and PayPal clearly see the importance of helping users stay compliant with existing regulations. While the former are well-used to dealing with crypto payments, PayPal only launched crypto support in October.
However, tax obligations for PayPal users wanting to spend cryptocurrency from their accounts might limit the appeal of the service. Therefore, integrating automated tax reporting could prove valuable to those PayPal users dabbling in the emerging asset class.