- Many jurisdictions still haven’t made their tax laws clear, meaning people are paying the wrong amount of tax on their crypto activity.
- “Cryptocurrency adoption and money invested has been relatively small to date compared to traditional tax evasion and corporate tax sheltering. This means that tax authorities get more bang for their buck with their limited staffing by going after these larger pools of money” said Pat Larsen – ZenLedger CEO – in an exclusive interview with BitStarz News.
- Apps like ZenLedger are helping people to get to grips with the taxes owed on their crypto activity, saving them from scary IRS bills.
Calculating taxes that are payable on crypto hodlings and earnings is no easy feat. In fact, crypto taxation has become quite the hot topic as of late. Very few nations have declared their stance towards crypto taxes, meaning that record numbers of tax returns are being filled in incorrectly. That’s where ZenLedger steps in to help out. ZenLedger is an app that will help compile all your crypto hodlings in one easy to view platform, making it simpler than ever to fill out your tax returns. As an added bonus, if you’re a tax resident of America it will even automatically fill out a handful of forms for you – how handy!
Alex Meears recently spoke with Pat Larsen – ZenLedger CEO – to find out exactly how the app works and how it can save millions of crypto users from facing huge fines from the IRS.
AM: What inspired you to create ZenLedger?
PL: We saw a clear market need to help people bring all their crypto trades together and figure out their taxes. We started looking at this idea in the summer of 2017 and the IRS was suing Coinbase (and subsequently won) for user information. We thought there was a need for a software that could help certified public accountants (CPAs) and individual investors, while also offering a great customer experience (UI/UX) and customer service. Those softer touches are often missing in blockchain, and we thought we could do better than the rest.
I really wanted to be on the leading edge of tech, so that’s why I jumped into crypto. I’ve worked at Amazon, investment banking, military aviation, and with a couple of startups, so I have a pretty diverse background. I think in order to flourish, the crypto community needs to learn to work with governments and deliver real-world results and innovations.
So, the idea of building vital infrastructure that would allow crypto investors to stay out of trouble, while hopefully also helping to keep the IRS from becoming overly aggressive in enforcing tax compliance appealed to me.
AM: How does the app work? Will it be able to see my private keys?
PL: We will never ask for your private keys and we will never see your private keys. When you are bringing your data from a wallet, we only ask you to provide public addresses – we have the ability to securely read the information off-chain.
That being said, we do ask you to provide your API keys when importing data from exchanges. We only acquire read-only access to a user’s exchange data which renders us unable to make any changes to the user account. We use the provided API keys to securely connect with the exchange and use a strong authentication mechanism and 256-bit SSL verification to request the data from the exchange. The API keys provided by the customer are stored in our internal database as a hash, and we have taken strict measures to store the keys in an isolated database server for increased security.
AM: Is the app just for use in America, or are you planning to add more countries soon?
PL: We plan in the next few months to add currency support so that anyone can use our Grand Unified Accounting spreadsheet, which shows all your transactions in one place. However, right now, we only auto-fill US tax forms 8949, Schedule D, and help with FinCen 114.
AM: Why do you think governments have been rather unclear on crypto taxes?
PL: I think there are a few reasons for this. First, tax officials are not technologists and so cryptocurrencies haven’t been brought to their attention until recently.
Secondly, cryptocurrency adoption and money invested has been relatively small to date compared to traditional tax evasion and corporate tax sheltering. This means that tax authorities get more bang for their buck with their limited staffing by going after these larger pools of money, which they understand much better and have a clear mandate to go after.
Thirdly, there has been no push by corporations, lobbyists, or individual investors for tax regulation. There has been no major financial implosion like the housing crisis to create public anger. Nor have politically powerful companies seen a clear way to profit from crypto, so they didn’t lobby hard for clear regulations. Large, slow bureaucracies with no incentive to act… do not act.
Smaller countries that have proactively carved out clear crypto regulations are trying to actively attract capital and talent. They are also nimbler when it comes to implementing new regulations.
AM: Which government, in your eyes, has been the most helpful towards crypto investors when it comes to tax time? Also, which has been the clearest and fairest when it comes to direction?
PL: We’ve been less concerned with comparing tax regimes than with solving the US tax regime. I’d say Switzerland seems to be taking the lead globally, but Japan probably has the most clarity among countries with larger populations.
AM: Do you think cryptos should be taxed in the same way other investments are, or how income is taxed?
PL: Like fiat, how you accumulated more crypto matters. The taxes paid will be different if you have more crypto because you were paid crypto as income, mined it, received in a fork or airdrop, or through capital gains from short term or long-term investments.
So, if you are arguing that crypto is money, you should expect it to be taxed to different extents based on use case.
AM: Do you think crypto tax laws should cover people who both invest in cryptos and those who get paid in cryptos? How would a government go about placing such regulations in place?
PL: In the end, taxes are meant to monitor economic activity and take some portion of it in for spending on public goods – that’s the theory at least. I think the existing tax laws can cover this.
If in the course of your work – where you are providing goods or services, you are compensated in crypto – that is income. It should be taxed as income. If you take your income and purchase tokens that you hope will appreciate in value, that is investing.
I think there will be some interesting innovation in utility and security tokens and this may need new laws, but we still need to wait and see where that path is heading.
I don’t see a huge need to tax crypto differently than you would tax fiat because the end use cases are the same. If anything, crypto allows for more accurate monitoring of economic activity, so less tax evasion, and then a lower tax rate for everyone.
AM: If you could give our readers one piece of crypto tax advice, what would it be?
PL: Stay out of trouble. That means avoiding scams or foolish investments, having tight security, keeping thorough records, and consulting tax or legal professionals as needed.
It’s important for all within the crypto community to stay tax compliant, so these words are certainly words to live by. If you haven’t already, definitely consider giving the app a spin to see how much effort it can save you come tax time.
Stay tuned to BitStarz News, as we continue to bring you the latest news and even more interviews with industry experts!