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 Lawmakers Introduce Bill to Simplify and Exempt Certain Crypto Transactions from Taxes

BlockNews Team by BlockNews Team
September 10, 2022
in Crypto, Finance, Politics
Crypto-Tax
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U.S. Senate Banking Committee Ranking Member Pat Toomey (R-PA) and U.S. Senator Kyrsten Sinema (D-AZ.) introduced a new bill called the Virtual Currency Tax Fairness Act. This bill is meant to streamline using digital assets for day-to-day purchases. Promoted as bipartisan, the bill seeks to exempt from taxation certain personal transactions that are small in value and involve using virtual currencies for goods and services.

Current Tax Treatment of Cryptocurrencies 

Under current tax treatment, a taxable event occurs every time a digital asset is used, exchanged, sold, or otherwise disposed of. Any gains from virtual currency transactions—commonly referred to as cryptocurrencies—must be reported as taxable income on one´s tax return. 

This is true regardless of the size and the purpose of each transaction. Specifically, a non-exempt taxable event occurs even if “solely by a fraction of a penny.”

Whether an individual is buying a cup of coffee or paying for a taxi fare, the individual must calculate the fair market value (“FMV”) of their crypto at the time of disposal and record it. As a result, keeping track of these small transactions is incredibly challenging—if not impossible—and works to discourage people from even using crypto in the first place. As Senator Toomey rightly put it,

While digital currencies have the potential to become a regular part of Americans’ everyday lives, our current tax code stands in the way.

How the Bill Will Change the Taxing of Crypto

The Virtual Currency Tax Fairness Act of 2022 is a bill “[t]o amend the Internal Revenue Code of 1986 to exclude from gross income gain from disposition of virtual currency in a personal transaction.”

The bill would simplify the difficulties of keeping track of small purchases with crypto by establishing a de minimis exemption for gains of less than $50 on personal transactions and personal transactions under $50.

The U.S. Senate Committee on Banking, Housing, and Urban Affairs state that the bill aims to allow people to use digital assets for everyday purchases by creating a “tax exemption for little personal transactions.”

Further, there is also built-in protection against the misuse or manipulation of the intended purposes of this bill. To protect against those wishing to take advantage of the bill and the bill´s exemption—for instance, by trying to evade taxes on more significant transactions—the bill “includes an aggregation rule to treat all sales or exchanges that are part of the same transaction as one sale or exchange.”

Reaction and Expected Effect of Bill

The bill is being promoted because it can relieve users from keeping track of small personal transactions. This is important because now, more people can participate in the crypto industry for small purchases. Further, by relieving some of these burdens, the bill “will also help unleash innovation on applications like micropayments, which can consist of dozens of transactions per minute and thus are difficult to square with the current law.”

Kristin Smith, Executive Director of the Blockchain Association, notes that this bill is crucial because it would ease consumer burdens while also allowing Americans to understand their crypto tax obligations.

Jerry Brito, Executive Director of Coin Center, claims that this bill “would foster the use of crypto for retail payments, subscription services, and microtransactions” and “solidify America’s leadership in cryptocurrency.” He further noted,

More importantly, it would foster the development of decentralized blockchain infrastructure generally because networks depend on small transaction fees that today saddle users with compliance friction that no doubt costs the economy more than the tax revenue that’s otherwise generated. 

Simply put, the bill would create a viable structure for taxing virtual currency purchases and foster a system that strengthens and legitimizes the use of cryptocurrencies in the economy. On this point, Representative David Schweikert of Arizona asserted that “[t]his legislation is an important step forward, and it lays the groundwork for growing the digital economy.”

Conclusion 

Senators Toomey and Sinema are being praised for introducing the Virtual Currency Tax Fairness Act of 2022—a bill that would exempt from taxation particular small personal 

Tags: BlockchaincryptoWeb3
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