With Bitcoin on a roll again, many believe because of PayPal and Square embracing the digital currency, PayPal Ventures invested today in cryptocurrency tax software TaxBit. PayPal Ventures is the venture capital arm of PayPal that invests in areas of strategic interest to PayPal.
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TaxBit’s software is used by thousands of everyday digital currency users, in addition to cryptocurrency exchanges and merchants, the company said. Among other digital currency tracking and reporting features, the software enables businesses to issue 1099 to merchants, vendors, and other entities who require this IRS form to complete their yearly tax returns.
The company plans to use the investment to expand its business with additional staff and grow internationally. “Going international is a huge piece of the puzzle,” said Austin Woodward, Founder and CEO, TaxBit in an interview.
TaxBit also received funding from Coinbase Ventures, the investment division of the popular cryptocurrency exchange and additional funding from existing investor Winklevoss Capital, a private investment firm that focuses on investments in digital currency startups and whose founders had a role in launching Facebook.
“We want to thank our customers, partners, and investors for helping us move the cryptocurrency space forward. This investment will help us achieve our aim of being the most innovative and trustworthy provider of cryptocurrency tax technology.”Austin Woodward, CEO and Founder of TaxBit and Certified Public Accountant
Salt Lake City based TaxBit was founded by CPAs, tax attorneys, and software developers in order to enable widespread cryptocurrency adoption by automating the regulatory hurdle of tax compliance. The amount of new funding was not disclosed by TaxBit or its investors.
Mainstreaming of Cryptocurrency
With PayPal, Square and expanding their services to include Bitcoin and possibly add other cryptocurrencies in the future, there seems to be a renewed push by major digital payment companies to be involved in expanding the use of digital currencies.
But one of the biggest hurdles for years has been the proper accounting of digital transactions, with the IRS issuing its first Virtual Currency Guidance back in 2014. Last year, the IRS asked taxpayers about their cryptocurrency transactions, trying to enforce further taxation compliance on digital currency use.
For business owners, accepting cryptocurrencies has always been a problem as businesses have to convert the digital currency into fiat currency to pay employees or vendors. Fiat currency is legal tender backed by governments such as the US Dollar, Euro, or British Pound.
Before PayPal and Square embraced cryptocurrencies, only niche companies like BitPay offered the ability to immediately convert crypto payments into fiat currency. BitPay even offers a Mastercard branded debit card that ties a user’s crypto wallet to allow for conversion into fiat currency.
Regardless, using crypto usually means incurring additional fees, including mining fees. Digital currency mining is the process of verifying the transaction for which the miner gets paid a small fee. There is actually a cottage industry and investment interest in digital currency mining.
If the expansion by PayPal and Square helps more companies accept digital currencies, there is a possibility that businesses could use proceeds from cryptocurrency transactions to pay vendors or contractors without having first to convert to a fiat currency. The mining fees would still be part of such transactions, but they are negligible by comparison to conversion fees. But that still leaves the taxation issue, which is where a company like TaxBit could help.
Since last year, Bitcoin and other digital currencies have seen a major resurgence because of the interest by bigger names like PayPal and Square. But as long as cryptocurrencies are seen as too risky due to their volatility, the friction of acceptance by everyday small business owners will likely continue to lag behind.
The “bigger names” may help stabilize a crash and this renewed interest in digital currencies may not wane as it did after the first big Bitcoin crash. Taxation compliance may also help with adoption as business owners will feel more comfortable knowing there is a legitimate method to account for digital currency transactions. However, cryptocurrencies still need to shake off the reputation as being part of a “dark economy” or a high-risk investment. That may be the biggest hurdle to overcome.
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