Today marked another important day on the road to tax and accounting clarity for cryptocurrencies. The new Virtual Currency Tax Fairness Act will introduce a new tax exemption on the use of cryptocurrencies and virtual assets for personal use and under a certain threshold.
This means that cryptocurrency transactions of a personal nature and for “small” purchases would not create a taxable event for the crypto holder.
The existing laws state that most activities involving cryptocurrencies are effectively taxable. You can read more about crypto taxation by country here. If the industry continues to move forward without a solution to this challenge, it will hinder cryptos’ desire to be recognized as a legitimate, functioning currency. In its current state, the sheer volume and complexity for accounting and tax leave professionals apprehensive.
This is not the first time this bill was introduced.
In 2017, an earlier bill was introduced to address the challenge but nothing materialized.
The previous bill put the number at $600. Should this newly proposed bill be approved, it would ultimately eliminate the need to report crypto transactions under $200 (in gains value).
There are still many questions that require answering, but the Virtual Currency Tax Fairness Act will likely go through several variations before it can be approved and implemented.
Background Story & Supplemental Information
When Starbucks and Bakkt introduced their goal to allow crypto purchases for coffee, one of the key challenges was the potential tax obligations that would be created. If you imagine every coffee transaction creative a taxable event, crypto accounting and tax become a severely challenging task. This new tax fairness act would quell this issue by eliminating taxation.
In accounting and tax terms, the term “de minimis” already addresses this industry challenge. It states that a certain threshold can be set that would allow certain transactions to avoid being taxed with capital gains.
It is important to note that while this new tax act solves a major industry challenge, it also opens up the door to potential crimes, such as money laundering and “washing”.However, should it be introduced, it will likely come attached to a stringent series of rule and anti-laundering mechanisms.
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