With the start of a new year comes the start of a new tax filing season in the United States. After an exciting and volatile 2013, many US taxpayers find themselves with substantial Bitcoin related gains (or losses) to report, but not the resources or expertise to calculate the precise amount. KryptoTax.com, which is presently free, is a new website that allows US Bitcoiners to easily and quickly calculate capital gains on their trades at tax time.
First impression: with stock photos of happy taxpayers and a simple menu, the website has a clean interface. Almost too clean, it turns out, since it isn’t immediately clear who owns or runs the project. However, there is a “Contact” page with an inline form for questions and comments. I had a few questions for this article, so I used the form to get in contact with Steven Dakh and Richard D’alessandro, the team behind KryptoTax. Dakh and D’alessandro are not accountants or tax professionals. Instead, Dakh described himself as a Bitcoin enthusiast and said that this isn’t his first cryptocurrency project.He told me that his team used the reference material at Bitcointax.info and a few other sources to build the website.
KryptoTax does not provide tax or accounting advice. In fact, the website provides almost no real guidance of any kind (though it does feature the covered opinion statement used by tax professionals to disclaim liability for uncertain tax positions). On the day when I tried to use it, the button linking to Bitcointax.info produced a “404 not found” error message (the error was corrected by the time this review was published). It isn’t clear whether this is because the product is meant to be used by / under the supervision of tax professionals or if users are simply expected to know what they are doing. This is a problem, as inexperienced Bitcoiners may be tempted to take the KryptoTax calculator as advice and forego further consultation.
New users create an account by supplying a user name and a verified e-mail address. No personal information is collected, though users should take care to use a unique password. After creating an account, KryptoTax allows a user to either manually enter trade data or import from CoinBase or Mt.Gox (the imported data must first be exported from the user’s accounts on the other sites). This is inconvenient. On the other hand, the lack of an automatic link and import capability keeps KryptoTax from serving as an attack vector for user accounts where money is kept. Other altcoins besides Bitcoin are not directly supported at present, but there is no reason that the site couldn’t be used to manually enter and track those transactions. KryptoTax’s Dakh says that native functionality for other altcoins is coming soon.
KryptoTax calculates capital gains using the first in-first out (FIFO) method of lot tracking, which means that the platform automatically assumes that the oldest Bitcoins are sold or transferred out of a user’s wallet first. Experienced stock and bond traders may be accustomed to this aspect of basis tracking, since most brokers give their customers the option of selecting among multiple methods (and are required to report trades to the IRS each year). FIFO isn’t necessarily the only method that will ultimately be allowable under IRS rules, nor is it always the most advantageous treatment. The website also allows coins to be “earned”, which automatically sets their basis to $0. This feature is useful for miners, but may be misleading to taxpayers who receive Bitcoins as wages (Bitcoin wages are classified as ordinary income).
Overall, KryptoTax does a decent job at calculating capital gains for Bitcoin trades under the very narrow set of conditions for which it is designed. Its limitations are partially redeemed by the ambiguity surrounding Bitcoin’s tax status, but users should know that Bitcoin may not ultimately be classified as a capital asset by the IRS. Though it could not be considered a robust or professional grade resource, it is simple to sign up and currently free to use. The website could be a good tool for taxpayers and professionals alike who are already familiar with the intricacies of taxation as it applies to Bitcoin at present, but others should be wary. Dakh and D’allesandro, the guys behind the project, are actively seeking feedback from the Bitcoin community. If their service generates enough interest, then additional functionality and higher cost are both likely in the near future.