We have conducted an interview with Pat Larsen, Founder and CEO of Zenledger, “the fastest and friendliest tax tool for cryptocurrency investors and accountants”. If you hodl, trade, or transact in crypto and are an American taxpayer, check it out. Zenledger can help you save a lot of money and headache with filing your crypto taxes!
Hello Patrick, please introduce yourself and your business.
Hi. My name is Pat Larsen. I used to be a Navy helicopter pilot. I got my MBA at University of Chicago. I then worked as an investment banker and tech/e-commerce. I co-founded ZenLedger in 2017 as I saw an opportunity to fill a need in crypto investing to help people with their accounting and taxes.
A lot of tax-payers have a pathological fear of tax accountants and try to delay filing their taxes as much as they can. In a way, it is somewhat similar to visiting your dentist. Tell us, why is it important to file your crypto taxes every year and file them properly?
The main reason to file your taxes properly every year is because you are legally required to do so. It’s an unhappy reality of life 🙁
You want to file annually also because if you have capital losses to report, this can be a benefit to your cashflow. You can deduct up to $3,000 from your income taxes as well as reducing your capital gains from other investments like stocks or bonds. It’s just very beneficial to avoid fines from not paying taxes, and also perhaps putting money back in your pocket.
Right now, there is a common understanding (or shall we say “misunderstanding”?) that the IRS does not have enough knowledge, resources or even desire to confirm accuracy of an average taxpayer’s crypto tax filings. A lot of players in the crypto markets believe that if they don’t file crypto taxes, a chance of them getting caught is slim to non-existent. Is this true?
I think it is safe to say that US based exchanges are reporting 1099K’s or some other trading activity to the IRS. The IRS has up to 7 years to pursue tax evaders. I think the IRS has made it clear that they are not taking this lightly and they will continue to try to improve tax compliance in crypto.
What additions to the IRS’s arsenal of crypto tracking tools should convince tax payers to abide by the laws and file their crypto taxes?
You can look at public contracts. The IRS, SEC, Homeland Security, Dept of Treasury are using blockchain analytics software to look for tax evasion and financial crimes in crypto. Lack of past audits do not guarantee lack of future audits 🙂
I’m not trying to spread FUD here but I think it’s common sense that when crypto had a market cap of $10B the Feds didn’t care and when crypto has a market cap of +$500B and Fortune 50 companies all have blockchain initiatives, the Feds care.
How does your service help taxpayers with their filings? What types of investors can benefit from your services the most?
The main issue is that accounting in crypto is complicated and there is no way to tie things together without well built software. Once you have a couple dozen trades and have moved crypto between a couple exchanges and wallets, the problem gets pretty complex. We can take in all of your trades (hundreds of thousands of them) from hundreds of different exchanges and wallets. Then we can optimize your tax return and produce tax forms for you. We can also produce a tax loss harvesting report so you can look for some tax efficient trades.
Do you have any concrete examples of how Zenledger helped some of your clients whether it be by reducing stress of filing, saving time, receiving a tax benefit, avoiding future amendment filing headache?
The Number 30 employee at Coinbase used ZenLedger and found that he overpaid his taxes by $235,000. So he was very happy to restate his taxes and claim a refund.
Another one brought his entire 14 person crypto investment group in to use ZenLedger. His dad is also part of that group. It shows you how trusted we become once you give us a try.
Most of our customers say it would have been impossible without our software. Customers are also surprised by the level of care they get from our customer service specialists.
Taxes are stressful and the main result we are delivering is accuracy, time savings, and peace of mind.
Current crypto tax laws could be subject to multiple interpretations, or sometimes even nonsensical ones. For instance, recently, the IRS interchangeably used the terms “airdrop” and “hard fork”, which is clearly wrong. The IRS also calls your income from a hard fork as “taxable” even if you did not sell that hard forked asset or are not even aware of it. In one of his videos, Colin Talks Crypto, made the following analogy to highlight the ridiculousness of this situation.
He said that being tax liable for a hard forked token in your account at the time of the split is analogous to having someone bury a gold bar on your land without your knowledge and you being charged a tax on that hidden gold bar.
How does Zenledger approach these interpretations? Are you aware of any work being done to educate the IRS and hopefully rewrite these interpretations?
ZenLedger is not a tax advisor. I agree that these tax rulings are confusing and that they can shift over time. It would be up to you and your tax advisor if you wanted to recognize an airdrop or not, because often they are worthless and just pile up on your MEW. Our software lets you ignore these transactions as you wish, so you can do some scenario analysis around your own tax strategy.
Every time I transfer tokens from an exchange to wallet – it triggers a taxable event. Every time I receive an airdrop – it’s a taxable event. Each time I buy a coffee using crypto at a crypto-friendly cafe – it’s a taxable event. Do you foresee the IRS eventually catching up to reality and making the crypto tax regulations more “user friendly”?
It’s not really up to the IRS. It’s up to our legislators and President. The House, the Senate, and the President have to agree to better, more clear, more comprehensive crypto regulation and taxation. The IRS, and other federal agencies, are then supposed to enforce those laws and policies. I don’t think the IRS is to blame here. They aren’t supposed to make policy.
I believe there was just recently a bill introduced in Congress addressing cryptocurrency regulation. I believe we’ll get better regulation at some point, but I have no idea when.
To clarify another point- transferring tokens from one account you own to another account you own is not a taxable event (exchange to exchange, exchange to wallet). Buying crypto with fiat is not a taxable event. However, selling crypto to fiat is a taxable event. Buying one crypto with another (trading BTC for ETH as an example) are taxable events. Selling crypto to stablecoins is also a taxable event.
Can you walk us through Zenledger? How exactly does it work? What are the costs?
The pricing is on our website and generally just corresponds to the number of transactions and the complexity of your returns. We have pricing tiers from $79 up to $999 for a year of tax returns. We also offer discounts for purchasing multiple years at one time.
ZenLedger is pretty simple to use. You simply create an account then start importing your transactions. We often have very simple, fast API connections with exchanges. We can also take in your transaction history from csv’s, wallet address, many public blockchains, or quick manual entries.
Once all of your transactions are in the system, we will then produce your tax forms and tax reports including a full audit package, a tax loss harvesting report, Form 8949, Schedule D, and your capital gains or losses using LIFO, FIFO, or HIFO accounting methods.
At any time, you can get customer support help by phone, email, or chat.
What’s in the pipeline for Zenledger? What are your short- and long-term plans?
We are going to be adding additional countries like Canada, Germany, and the UK for tax support. We are going to look at adding portfolio tracking and trade insights as well. Mostly we are going to focus on continuing to make it as fast and easy as possible for you to get your tax reports and to provide friendly and helpful customer service anytime you need it.
Disclaimer. EOSWriter does not endorse any content or product on this page. While we aim at providing you with all the important information we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.