CrossCoin Ventures, the digital currency accelerator working with Ripple Labs (at arms length), is proud to welcome the program’s first inductee, LibraTax. Founded by Jake Benson, the startup has been developing a software suite aimed at providing crypto-tax and accounting software—which will be released by September, just in time for extended tax season.
LibraTax’s mission is to simplify compliance for users and enterprises alike with a convenient and automated platform. We had a chance to catch up with Benson, who recently moved into the fourth floor of Ripple Labs’ office in downtown San Francisco.
Can you tell us a little bit about yourself?
I was an IT consultant at Capgemini where I was an SAP consultant. SAP is a huge piece of enterprise software devoted to resource planning that services a lot of business functions. The function I was responsible for was payroll systems. I configured and installed systems for several Fortune 500 companies.
How did you get started with LibraTax?
Payroll taxes are by far more complicated than capital gains taxes. I was thinking about the issue for quite a while—and how I’d pay taxes on my own bitcoin holdings. A full-fledged solution didn’t really exist.
I’ve been in bitcoin for about almost two years now. Since high school, I’ve been friends with Dan Held, co-founder at Zeroblock (acquired by Blockchain.info). We’ve talked about bitcoin on a daily basis for a long time. I bought a few when it was around the $60 price range
Then Zeroblock turned out to be a huge success. That was really a sign for me that there’s a lot of interest in this space and bitcoin is really growing up. And with that maturity comes a big need for regulatory and compliance at the enterprise level.
Thoughts on the recent IRS guidance?
There’s been kind of a mixed reaction in the community and people in general—some even see it as the end of bitcoin now that the government is taxing it.
First, this isn’t the government deciding to tax bitcoin. It should have been assumed all along. Transactions and trading, those are taxable events. Anyone educated in tax law would have said that the classification resembles property.
Second, this wasn’t the IRS writing new tax law or a special rule for bitcoin. It was more along the lines of confirming to the public that bitcoin falls into regulatory framework that already exists.
The other option, of course, would be to classify it as currency, but currency taxes are a lot more complicated and could potentially have a greater financial impact than property taxes.
I think the IRS guidance is good from a couple of perspectives. Now we know the rules of the game and have clarity to move forward. Plus, the fact that they did this and acknowledged the technology is a good sign for bitcoin.
To me, it’s essentially a best case ruling. One would be totally naive to think that the government would ignore digital currency completely and allow it to be tax free. So there are a lot of silver linings to this. It’s by no means a roadblock even if it presents a hurdle.
So where does Libratax fit in?
Libratax is a way to easily calculate your capital gains or losses on all of your bitcoin transactions. It solved a couple problems that are impossible or very difficult to do manually—especially if you make high frequency trades or even just trade a couple times a week. It’s difficult to keep track of so the software is pretty essential.
With this IRS guidance, it’s not only trades on bitcoin that’s a taxable event but purchases for goods and services, too. This increases the complexity of calculating capital gains and losses. Our program is going to be able to distinguish between the two and what trades and transactions are non-taxable. It will be very comprehensive. You can even accept bitcoin as income in some cases now so we will consider all scenarios. We’d like to calculate taxes for all of that.
Do you have a perspective on Ripple?
I think Ripple just has an amazing amount of potential. The cool thing about Ripple is that you can facilitate trades from any property to any other property—and we’re not just talking about digital currency. You can create an order book for really any two items. There’s also a lot of tax implications there, too. The fact that the computers do all the bookkeeping is really cool. The ability to do automated tax processing over an automated accounting system, I think, is actually going to be revolutionary in the long run. Taxes are going to be one quick thing.
Libratax itself isn’t built on the Ripple platform, but Ripple is one of the currencies and platforms it will support. It will be its own standalone product.
Where does CrossCoin Ventures fit into the equation?
They’re investors in Libratax and run the accelerator program. The four partners are devoting a lot of effort to help me get up and running. Their expertise has really been a huge help and I hope to continue the great progress we’ve made over the next four months.
What’s cool is that I was the first company to join the program. This is new for them, too. So in this initial period—I think they have a few others in the pipeline—I get a lot of personal attention at the moment. Everyone’s really excited about it—not just me and my lead developer—to go the distance. The partners are very involved.
How about the proximity to Ripple Labs?
I think it’s awesome. I get to meet a lot of those guys. There’s some pretty brilliant people working here at Ripple Labs and being surrounded by that kind of environment is a dream.
Biggest challenges going forward?
The name of the game is speed—getting to market quickly is critical. This market’s kind of wide open, I believe. The faster we can get our product out, the better.
The latest it will come out is in September to give some time for extended tax season. You get until October 15 if you filed for an extension. We’d like to pack in as many features by then as possible and hopefully ship even earlier.
Libratax is the first service and suit of products that we’re building. Capital gains tax is just one issue. We also have sales tax for merchants so we’ll be building a tool for them. There’s payroll tax as well, which is my personal area of expertise.
It’s not very common yet, but employers will be paying their employees in digital currency eventually. They’ll need a tool to do that or some kind of third-party plugin that allows digital currency in their payroll platform.
Ultimately, our goal is to build more compliance and regulatory tax solutions—not just for consumers and merchants but enterprises as well.