SALT LAKE CITY — U.S. taxpayers will see a question, once buried in a schedule attachment, now prominently displayed near the top of the ubiquitous Form 1040 this year that reflects the IRS' rising efforts to account for rising activity in cryptocurrencies as an investment target and transaction medium:
"At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"
Salt Lake-based TaxBit has been working since 2018 to help simplify and automate tax reporting duties for cryptocurrencies like Bitcoin, Ether and many others, and on Tuesday announced a $100 million Series A investment round.
While the company began life focused on crypto tax software for consumers, it has since expanded into the enterprise market and now offers products for individuals and businesses to not only keep up with the IRS' expanding reporting requirements but "actively tax optimize their investments and use of cryptocurrency," according to the company.
Founded by brothers Austin and Justin Woodward along with their cousin, Brandon Woodward, TaxBit launched three years ago with an initial investment from Utah's Album Venture Partners, but thanks to early success is now drawing the interest of, and checks from, nationally prominent investment groups.
TaxBit's mission, according to the company, is to take cumbersome crypto tax reporting issues off the table as a potential hindrance to those interested in the growing realm of virtual currencies.
"At TaxBit, we believe that one of the greatest financial innovations and disruptions of the last century, cryptocurrency, should not be weighed down by the complexities of tax and accounting," TaxBit CEO Austin Woodward said in a statement. "The past 12-months at TaxBit have been monumental, as our products are removing some of the largest roadblocks of this emerging asset class. With the support of Paradigm, Tiger Global and many other amazing investors, we are excited to continue to scale world-class tax and accounting products so that cryptocurrency can continue to thrive among enterprises, consumers and governments."
TaxBit says its platform is not only optimized for individuals and businesses but is also the right tool for government and public agencies that have dealings in digital currencies. The new capital will help drive TaxBit's growth, which includes plans to more than double its current employee roster of around 40.
TaxBit has also drawn interest from another Utah entrepreneur that launched a company with family members to great success.
Utah Jazz owner and Qualtrics founder Ryan Smith is among those investing in TaxBit. He noted in a Forbes story on TaxBit that former Qualtrics employee Austin Woodward and his co-founders were following a similar arc to the Provo-based customer-experience innovation company Smith started with his father and brother almost 20 years ago.
"This is my way of getting into crypto," Smith told Forbes. "When building a startup like Qualtrics, you wonder how many people are paying attention. Austin was definitely paying attention."
Cryptocurrencies live on digitally distributed ledger, or blockchain, platforms that function on three central pillars: decentralization, transparency and immutability.
To further decipher, no single person or entity controls it. Everyone can see it and no records within the chain can be added, removed or altered without the consent of everyone on the network, i.e., it's very, very secure.
TaxBit notes the exponential growth of cryptocurrencies with a current market capitalization of around $1.5 trillion and increased activity from a wider range of investors including retail and institutional sectors make its platform more relevant than ever.
Matt Huang, a former Sequoia Capital partner and co-founder of San Francisco-based Paradigm, said TaxBit was outgunning the competition when it comes to automating the tax challenges of crypto use and investment.
"The rise of cryptocurrency poses new tax and accounting challenges for individuals, businesses and governments alike," Huang said in a statement. "We believe TaxBit has built the best-in-class solution and are thrilled to be partnering with Austin Woodward and the rest of the TaxBit team."
In addition to Paradigm, Tiger Global and Smith, other investors in TaxBit's Series A funding round include PayPal Ventures; Coinbase Ventures; Winklevoss Capital; world-renowned investor Bill Ackman; Anthony Pompliano; former Venmo COO Michael Vaughan; Galaxy Digital; Valar Ventures; Collaborative; Global Founders Capital; Album Ventures; TTV Capital; Original Capital; and others.