The core concept behind LibraTax is surprisingly elegant: Using simple block chain queries, it constructs a history of the user’s transactions. It then compares the fair-market value of bitcoin on the date of each transaction, allowing taxable events to be calculated with extreme precision. The software also allows each transaction to be accounted for in its correct context, with different rates for income, gifts and payments.
The program has been under active development since April of this year, following the first official guidance from the IRS about how bitcoin should be treated under U.S. tax law. Although many balked at the IRS’s view that bitcoin should be treated as a commodity, and noted the sheer impracticality of calculating capital gains taxes on something as trivial as a cup of coffee or a ChangeTip payment, LibraTax’s largely automated system could make those points moot. Although designed with business accounting in mind, the system could actually provide bitcoin users with some of the noted advantages of capital gains system.