When David Kemmerer, Mitchell Cookson and Lucas Wyland launched a tax-reporting software for cryptocurrencies in early 2018, some in the cryptocurrency community thought it was a joke.
“People almost laughed at us because the words cryptocurrency and taxes did not belong in the same sentence,” Kemmerer told Built In. “The landscape has very quickly changed. Now it’s one of the IRS’ highest priorities to crack down on the tax reporting gap within digital assets.”
The trio went on to found CryptoTrader.Tax, which announced on Wednesday that it has raised $6 million and will rebrand under the name CoinLedger, reflecting the company’s evolution into portfolio management and accounting software.
Similar to other investment assets, cryptocurrency users must pay capital gains tax whenever they dispose of cryptocurrency, which includes selling cryptocurrency and trading one type of cryptocurrency for another type of cryptocurrency .
Another hurdle cryptocurrency users face is keeping track of all their accounts. Because many cryptocurrencies are interoperable, meaning their value is recognized across blockchains, cryptocurrency users sometimes spread their digital assets across numerous platforms.
“This happens all the time,” Kemmerer said. “Cryptocurrency users are buying on Coinbase and Bitcoin, then they send it over to BlockFi to generate interest and then they pull it to their own wallet that they have custody over.”
CoinLedger’s software solves this problem by integrating with hundreds of cryptocurrency exchanges, wallets and blockchains, allowing users to pull in all of their tax-reportable activity to a single platform that integrates into TurboTax.
The software also accounts for NFTs which, like other high-value assets, must be disclosed to the IRS when they are sold or traded. As the burgeoning Web3 world evolves, Kemmerer said CoinLedger will evolve along with it to track activity and report tax obligations in the metaverse.
CoinLedger has about 35 employees, four of which are based in Austin. The company expects to double its staff in the next year to 18 months, with an emphasis on hiring software engineers.
Kemmerer, who lives in Austin, said Austin has been a great place to launch a cryptocurrency startup.
“There are a lot of companies and venture capital, which has been extremely helpful as we collaborate with our peers in Austin,” he said.
The investors in the funding round include CMT Digital, DRW Venture Capital, FinTech Collective, Volt Capital, Voyager Digital Ltd., Bakkt co-founder Adam White and The Block founder Mike Dudas.
“As a crypto investor, manually calculating your capital gains and losses across potentially thousands of transactions leaves a large margin for error,” Kim Trautmann, head of DRW Venture Capital, said in a statement. “The tax reporting and portfolio management resources that CoinLedger provides are critical for the crypto environment to continue to scale and is the kind of technology DRW Venture Capital is excited to work alongside as it continues to broaden its crypto tax services.”
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