New US Bill Could Make Small Crypto Transactions Tax-Exempt
Changes may streamline commerce.
U.S. Congress has introduced a bill that could make it easier for consumers to spend their Bitcoin. Representatives proposed the bill on Thursday, Jan. 16.
Known as the Virtual Currency Fairness Act of 2020, the bill eliminates the need for consumers to calculate taxes on crypto transactions that result in capital gains under $200. The change would amend a tax act that is nearly 35 years old.
This is not the first attempt to pass a law of this type: in 2017, Congress introduced an earlier version of the bill, which proposed a $600 exemption limit.
The fact that this month’s bill has a lower limit may be more appealing to legislators. However, there is no guarantee that it will be put into law.
Will It Make a Difference?
The bill confronts a key issue: Bitcoin’s constantly fluctuating market price. When businesses accept cryptocurrency, they usually convert it into U.S. dollars.
This means that when individuals spend Bitcoin, they must calculate how much value their holdings have gained since they first obtained that Bitcoin. They must also keep records of those gains and report those amounts on their taxes.
Crypto lobby groups have suggested that this is unworkable. Neeraj K. Agrawal of Coincenter writes that if Starbucks ever accepts Bitcoin, “you will be required to calculate capital gains on every cup of coffee you buy” under current rules.
But despite this supposedly complex tax structure, it does not appear that capital gains are an issue in practice. Payment processors such as Bitpay and Coinbase Commerce have had little trouble attracting users who are eager to spend their crypto.
Other Tax Developments
Though this bill may be a sign that the U.S. government is willing to ease up on its approach to cryptocurrency, it is clear that capital gains are generally taxed.
Last October, the IRS released new tax guidelines, which reaffirmed that U.S. investors must pay taxes on gains from the sale and conversion of virtual currency. It clarified that gains on airdropped cryptocurrencies are subject to taxes as well.
The IRS has also worked with Chainalysis and Coinbase to investigate tax evasion. With those firms, the agency has been able to identify coinholders on public blockchains and exchanges. The authority has already sent notices to thousands of investors to date.
Complex tax rules are driving demand for a new sort of service too. Some exchanges are offering tax management tools, allowing investors to put their minds at ease.