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Blockchain Based Digital Currency IRS Tax Software Launched, Bitcoin Monitoring to Become Easy

The problem with disruptive technology is that it transforms the legacy systems rooted deeply into the ecosystem. The existing systems can’t catch up with the developments and end up tainting innovation. Over a period of time, eventually the system accommodates the technology but not before hampering further innovation. This is exactly what has happened with Bitcoin and IRS in USA. Bitcoin is all set to transform the existing monetary system and IRS. The IRS has issued summons to Coinbase, one of the leading Bitcoin wallet services companies to reveal the details of its users.

Coinbase has committed to protect the privacy of its customers and so has been fighting the summons and the entire scenario has turned ugly for crytpocurrencies. Luckily, a US based blockchain firm has launched a software that monitors and records gains of  users of cryptocurrency. Let’s look into the details of the software and how it will be impacting cryptocurrency monitoring.

Monitoring the transactions


Launched on 22nd March, the software was developed by New York-based governance firm Node40. The firm is commonly known as the masternode host provider for Dash, a prominent cryptocurrency. The software has been named as ‘Node40 Balance’ and performs net profit/loss calculations on all the transactions in a calendar year. Since Bitcoin is being treated as an asset and not a currency, filing taxes for Bitcoin falls under IRS Form 8949. The form seeks taxpayers to report capital gains and losses from transactions related to investment in assets. The software sources data from Blockchain before directly filling in the details.

How the software works


CEO of Node40 Perry Woodin stated that a simple FIFO (First In First Out) strategy is not sufficient to deal with digital currency transactions. A method of asset valuation is FIFO where it is assumed that the first assets produced or acquired are the first products sold. This valuation is frequently used for traditional investments where assets are sold. However, when it comes to cryptocurrencies the transactions have multiple inputs and hedging across various cryptocurrencies will make it difficult to understand the dynamics as these currencies can also be used for transactions.

Woodin said:

Node40 Balance analyzes the blockchain and provides valuation data for all your transactions. You annotate your transactions according to your real-world needs and Node40 Balance provide reports with your gains, losses and income.

The major challenge with Bitcoin or any other cryptocurrency is that it can act both as an asset class for storing value or be used for transacting. This would make it difficult to distinguish how the currency is being used and what can be the pending implications. Hence a software of this sort that adjusts to the nature of the digital asset class would be an apt solution for the challenge at hand. In turn, this would lead to an ecosystem where digital currencies would be well regulated and well accepted.

Coinbase steps up the game, launches margin trading

The versatile Bitcoin exchange and wallet services provider, Coinbase has been in the limelight consistently from August last year after IRS issued summons to reveal the details of its customer base. While the firm is fighting off the summons, it has put in good efforts to re-affirms the customers’ confidence in the company. The successive campaigns have become successful as the company recently hit the landmark of 6 million customers.  In an attempt to woo and capture institutional investors, the wallet company cum exchange has introduced Margin feature. Let’s dive deep into how Coinbase has progressed after the law suit and what they have in store for the ever changing Bitcoin ecosystem:

Coinbase-IRS Lawsuit:


After a recent investigation, IRS has revealed that only a small number of people are declaring their bitcoin profits or losses in their yearly tax returns. The investigation followed after Coinbase decided to fight the summons issued by IRS through lawsuit in attempt to conserve the privacy of its customers. The first ever Bitcoin company with a Billion dollar valuation provides its services primarily in US and in other parts of the world and is committed to protect the identity of the customers. Coinbase said:

We will continue to work with the IRS to assess the government’s willingness to fundamentally reconsider the focus and scope of the summons. If it does not, we anticipate filing opposition papers in court in coming months.

Coinbase doesn’t support listing Bitcoin Unlimited:

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Recently a group of 20 exchanges signed a statement that they would be listing ‘Bitcoin Unlimited’ as another cryptocurrency in case of a hard fork. However, Coinbase’s CEO Brian Armstrong publicly agreed that he didn’t support the statement. He believes that listing any currency as BTC regardless of longest chain and presumably other factors of price and transactions is not healthy for Bitcoin development. The hard fork seems inevitable with  Bitcoin Unlimited having 40% network share which might occasionally hit 50% owing to the network variance.

Launch of Margin Trading Feature:


Coinbase’s GDAX digital asset exchange has included margin trading feature in an attempt to capture the market that comprises of institutional investors. From March 20th, eligible customers can trade with up to three times leverage in markets for Bitcoin, Ethereum and Litecoin. The increasing interest of institutional investors in cryptocurrencies has prompted the exchange to introduce the feature. However the feature is only available for selected investors/traders. With this launch, GDAX becomes the second US-based exchange to offered leveraged trading services for cryptocurrencies after Kraken.

Why IRS should adapt to Bitcoin and update its monitoring system

The problem with disruptive technology is that many a times, it affects the legacy systems rooted deeply into the ecosystem. The existing systems can’t catch up with the developments and end up tainting the innovation. Over a period of time, eventually the system accommodates the technology; but the real fear is in not letting it hamper further innovation. This is exactly what is happening with Bitcoin and IRS in USA. Bitcoin is all set to transform the existing monetary system and IRS is struggling to still acknowledge Bitcoin as a currency or as an asset. Instead it has attacked major Bitcoin exchanges and indirectly accused Bitcoin Users of Tax Avoidance. Let’s look into what exactly happened and how IRS should probably go about monitoring cryptocurrencies:

Coinbase fights IRS summons:


IRS issued guidance in March 2014 concerning income from bitcoin and “virtual currencies”. However, there has been no enforcement mechanism to ensure that bitcoin income is actually reported to the IRS. Having failed to create an enforcement mechanism, the IRS is taking a brute-force approach. The John Doe summons authorized on 30th November demands that Coinbase provide complete transaction records for all users between 1st January, 2013 and 31th December 2015. If the IRS succeeds in forcing Coinbase to turn over their records, this would be a massive invasion of privacy and guilt by association. Coinbase has filed to fight against these summons and the proceedings are underway.

Core of the problem:


Most of the experts feel that the problem lies in reporting Bitcoin transactions. There is no exact mechanism to monitor the filings and hence the problem arises.    The reporting requirements aren’t exactly clear and compliance is very complicated. Buying and selling of a Bitcoin will result in a profitable or loss transaction. For bitcoin that was purchased or received on different dates, the value of each input comprising a transaction is subject to a gain or a loss. Reporting numerous transactions of this type requires upgraded technological framework. This framework has to accurately calculate the values necessary for reporting to the IRS adhering to compliance.

Possible solution for the problem:


Experts believe that to counter this problem, IRS needs to first update its tax guidelines. Secondly, a software system or computer protocol needs to be developed so that any user or investor of cryptocurrency can compile a report at the end of the fiscal year. The report shows unrealized gains and losses from their entire virtual currency portfolio. This can be handed to accountants in a format that is easily understood and accurate. This can in due course of time evolve to become a national standard.

Beating Uncle Sam: Learn How To Invest in Bitcoin Tax-Free

One of the most popular quotes attributed to Benjamin Franklin is that “in this world nothing can be said to be quite certain, except death and taxes”. Taxes are one of the unavoidable facts of modern living and you’ll most likely run into serious troubles if you don’t pay your taxes in full and on time. However, taxes are mostly unfair and it hurts many people to give a significant part of their income to Uncle Sam just so they could be law-abiding citizens.

The worst part is that the rich folks, politicians, and people in the corridors of power pay relatively lesser taxes than the average Joe. In fact, folks close to the corridors of power have built in loopholes into the taxation laws in order for them to avoid paying taxes legally. Some folks also embrace offshore bank accounts as a means to store their wealth while reducing their tax liabilities.

However, you don’t need to be in the corridors of power to beat Uncle Sam in the tax game. More so, you don’t need to go through the stress of opening an offshore account. This article provides information on how you can invest in Bitcoin tax-free and legally without incurring the wrath of Uncle Sam using a Bitcoin IRA Account.

What you need to know about Bitcoin and taxes

To start with, Bitcoin is likely to enjoy a more favorable tax environment in Europe. In 2015, The European Court of Justice Ruled that Bitcoin and other cryptocurrencies are exempt from value added tax (VAT). In essence, you’ll be more able to exchange Bitcoin tax-free in Europe than in any other part of the world. Many EU member nations such as Belgium, Spain, and Switzerland have adopted the rule to provide Bitcoin VAT exemptions.

The U.S. tax authority, Internal Revenue Service (IRS) doesn’t seem to be particularly endeared to Bitcoin and it has ruled that Bitcoin is taxable. Based on IRS guidance notice 14-21, the law regards Bitcoin and other cryptocurrencies as capital assets. In essence, the IRS says your Bitcoin is similar to stocks and bonds; hence, you must disclose and account for your Bitcoin losses and gains in the same way that you’ll account for stocks losses and gains.

Nonetheless, you should note that it is not easy to report and tax Bitcoin holdings because it is very hard to determine the fair value of Bitcoin. Hence, many people tend to avoid Bitcoin altogether in order to avoid making mistakes that could put them on the hook for misfiling or tax evasion. However, a Bitcoin IRA Investment can help up invest in Bitcoin tax-free without running the risk of flouting the law.

Here’s out to beat Uncle Sam to for tax-free Bitcoin investments

The first thing you need to understand about investing in Bitcoin tax-free is that you’ll need a Self-Directed IRA. You can Rollover your 401k into Bitcoin using a self-directed IRA and the Bitcoin in your self-directed IRA account will be tax-free. However, any other Bitcoin that you hold outside the Bitcoin self-directed IRA account will be subject to taxes because the U.S. government treats Bitcoin as an asset.

To start with, you’ll need to contact a company that helps people to setup a self-directed IRA and inform them of your intention to open a self-directed IRA. You can only invest Bitcoin in a self-directed IRA – your 401K or ROTH IRA might not be suitable for tax-free Bitcoin investments.

The company setting up your self-directed IRA will send you some forms that will be used for the incorporation of an “investment” LLC. You’ll be designated as the manager of the LLC – and a new company that we will call XYZ IRA Services (for example) will be the sole member.

You’ll also be asked to fund the XYZ IRA Services and forms to initiate the funding will be provided to you. You can fund XYZ IRA Services by moving money from your 401K, your ROTH IRA, or by setting up a new IRA contribution strategy by wire transfer or check.

After you have funded XYZ IRA Services, you can send an Investment Authorization form to XYZ IRA Services with directions to invest in the LLC. You’ll also need to open a business checking bank account in the name of the LLC.

Once the business bank account is up and running, you can simply buy Bitcoin for your IRA from a Bitcoin exchange. Once the Bitcoin is deposited in your wallet, you’ll only need to sit back and watch your investment grow without having to worry about paying the prevailing capital gain tax. Rinse and Repeat!

Self Directed Bitcoin IRA and Its Benefits

Self Directed Bitcoin IRA and Its Benefits

Owning a self directed IRA, very simply put, means that you get to decide how you invest your money. Most experts agree that this is the best type of IRA to choose if you want to invest in the popular new digital currency, Bitcoin. But what is a self directed Bitcoin IRA, how does it work and what are its benefits?

What Is a Self Directed Bitcoin IRA?

“A self-directed IRA is an individual retirement account with its investments under the complete control of the investor. These types of accounts hold the same types of limitations when it comes to the amount of deposit per year and the withdrawal of funds”.

What Can You Invest In?

Bitcoin IRA Partners with Kingdom Trust and BitGo to provide a Bitcoin IRA

Although this type of IRA is self directed, which means you control what you invest in, there are some limitations that you have to understand. This is because the Internal Revenue Service has some pretty strict rules in terms of what is and isn’t acceptable.

“In order to invest in digital currency via a Bitcoin IRA, the user should ensure that their asset meets the fitness requirements set by the Internal Revenue Service (IRS). The regulations pertaining to investing in Bitcoin can be found on the IRS Virtual Currency Guidance page.”

If you do not meet these regulations, then you will have to pay certain taxes over your investment. Bitcoin is acceptable digital currency. In addition, there are regulations on how the bitcoin is stored and what access a user has to it. As such, as liberal as a self directed Bitcoin IRA may seem, it is actually quite restrictive.

However, Bitcoin IRA has partnered with BitGo and Kingdom Trust and have been able to create the first Bitcoin IRA in America which follows the correct IRS rules themselves, which means you don’t have to worry too much about buying the wrong thing. Always try to rollover with the most trusted and reputable company, like Bitcoin IRA. They have teamed up with BitGo for extra security.

You Can Have Great Benefits

There are many different benefits of choosing a Bitcoin IRA.

“You can diversify your traditional IRA or Roth IRA by placing bitcoin in it. More importantly, you may transfer your existing IRA to a qualified Bitcoin IRA without incurring taxes or penalties. If your 401K plan permits it, you can even place Bitcoin in it.”

Having a balanced and diverse portfolio is key to having a successful investment. However, the self directed Bitcoin IRA takes that one step further. After all, you can have a diverse portfolio by investing in stocks, gold and bonds as well. What makes Bitcoin different is that you can cash out your investment at the end of your term and decide whether you want that in actual money, or in Bitcoin itself. If you opt for physical posession, you can choose to hold your Bitcoin and sell it at a later stage, when it is perhaps worth more. This means that these types of IRAs are far more flexible than any other kind. Also, Bitcoin IRAs have tax benefits.

How to Set It Up

In order to set up a self directed Bitcoin IRA, you first must find a broker that allows for these types of constructions. Bitcoin IRA is one the few for you to choose from, but do take the time to review all the various pros and cons of each plan. Many of these companies also allow you to roll over your existing IRA or 401(k), so if this is something you are considering, you can narrow down your options. Make sure to do your research and consult with a financial adviser before making any decision.

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