On January 16, a bill known as the Virtual Currency Tax Fairness Act of 2020 was introduced before the US Congress. The bill is seeking to make it easier for people to spend their crypto holdings. It wants to make amendments to the Internal Revenue Code, which was passed nearly 35 years ago.
Introduced a Limit on Taxable Transactions
According to the proposed amendment, those who make crypto transactions below $200 would not have to pay capital gains tax. In 2017, a similar bill was introduced in Congress. At the time, the limit had been set at $600. However, the bill did not pass. The lowering of the limit might be an attempt to placate members of Congress into passing the bill.
Issues it seeks to Address
According to an article by Coincenter, the bill seeks to address the issue of the highly fluctuating nature of the crypto market. It states that since each crypto transaction is a taxable event, calculating the amount of tax one owes can be quite complex when making small purchases.
The article states that this is impractical since the price of the crypto they are using in their purchase could have appreciated or depreciated by the time they complete a transaction. For instance, when buying a cup of coffee. This has resulted in most companies in the US refusing to accept small crypto transactions; it is simply too complex.
However, this does not appear to be an issue for companies such as BitPay and CoinBase Commerce. It is worth noting that these firms have the financial muscle and expertise to make these complex calculations. These resources are out of reach for an ordinary person trying to buy a cup of coffee.
One interesting aspect of this bill is that it received bipartisan support. US House Representatives Emmer, a long-time advocate of the crypto sector, Delbene, Schweikert, and Soto, introduced it. Despite this bipartisan support, the bill could still have a hard time passing. One of the fiercest opponents to crypto and Bitcoin is Representative Brad Sherman. In the past, he has been very critical of Bitcoin and was recently elected as the chair of an important Congressional sub-committee.
Crypto Taxation in the US
In October 2019, the IRS released an update to its tax guidelines for the crypto sector. The bill made it clear that all US citizens had to pay capital gain tax for their crypto transactions. Besides that, it clarified that it would impose a tax on gains from hard forks and airdrops.
The IRS has been working closely with various firms to track down those who may not have reported their gains in the crypto sector. It has already sent thousands of warning letters to those who failed to report their activities in the crypto sector.
Good But Not Good Enough
The complexity surrounding crypto is spawning a new industry. For instance, some companies now have tools that help users calculate their tax obligations using data from exchanges. In order for cryptocurrency to ever go mainstream, the figure needs to be lifted above $200, so people can transact without worrying about taxes. $200 is a good starting point, but we all know that the average consumer spends much more than $200 / year on goods and services. The HODL statistics on cryptocurrencies such as Bitcoin are of epic proportion. The IRS actually has the opportunity to make significant money in taxes if they incentivize people to spend their digital assets. $200 just isn’t a good enough pitch..
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