In 2018, product consultant Vamshi Vangapally needed to figure out how to file taxes on his cryptocurrency transactions. He had tried to alleviate his anxiety around trading cryptocurrency by using a bot to automate his trades. It didn’t work.
When the bot he’d programmed posted nearly 20,000 transactions in a couple of days, the flurry of activity got him flagged by the IRS and left him scrambling to calculate how much tax he owed and how to file them appropriately.
“I tried using existing tools and they either failed to import or stuck with huge volume.” Vangapally tells Hypepotamus. “So, I had to make something that could bring in my trades from 3 different exchanges and calculate my gain-loss.”
Seeking answers, he took to cryptocurrency forums online, including Reddit, where he encountered a slew of panicking traders. They were worried about notices from the Global Digital Asset Exchange (now Coinbase Pro) informing them that cryptocurrency exchange Coinbase would be turning their financial information over to the IRS.
Because they hadn’t thought about taxes as they traded cryptocurrency, they needed the same answers Vangapally did, which led to an exchange of ideas and information — and a bit of inspiration.
He consulted colleagues and designed a workflow with usability factors in it. After 20 days and late nights, they emerged with the cryptocurrency tax platform BearTax in February 2018. His first users included many of the traders he’d met online.
“BearTax was addressing the need of the hour,” Vangapally says. “It was something born out of my own necessity. Build what you would use.”
BearTax’s platform grabs users’ cryptocurrency trades from exchanges around the world and matches them against transactions made and imported into the platform.
Once everything is matched up, users receive an accurate and detailed gain-loss document they can then use to file their taxes with ease. Assembling that document, however, is much easier said than done, says Vangapally.
“Aggregating transactions from everywhere seamlessly and finding actual taxable events, assigning the right purchase price, selling price, matching the right trades to find gain or loss is impossible for just more than 100 transactions,” says Vangapally, pointing out that the average cryptocurrency trader makes approximately 300 trades a year.
“Our platform automates all of this, from aggregation, review, processing and generating tax documents that are ready to file or import in TurboTax.”
Cryptocurrency isn’t just Bitcoin. Vangapally estimates that about 1,000 types of virtual currency are being traded on more than 1,500 exchanges around the world — and that number is increasing. In addition, cryptocurrency is traded every hour of every day, unlike stocks, so price changes come constantly.
BearTax also helps relieve some of the pressure associated with filing cryptocurrency taxes by helping CPAs and accounting firms manage their clients’ cryptocurrency transactions. The Atlanta-based startup also helps exchanges process user transactions and tax documents, plus assists hedge fund managers and administrators in combining their transactions for tax purposes.
“Those two events were huge for us. They gave us a lot of confidence,” Vangapally says. “A lot of curious people have consulted with us and showed us how we can grow. It helped a lot.”
BearTax will remain bootstrapped for now.