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You are here: Home / News / Bitcoin News / Coin Centre Bill Could Loosen Cryptocurrency Taxation Policies and Pave Way for Mainstream Adoption
Coin Centre Bill

Coin Centre Bill Could Loosen Cryptocurrency Taxation Policies and Pave Way for Mainstream Adoption

January 18, 2020 by Richard M Adrian

Crypto asset taxation could be lengthening the long walk to crypto adoption in the United States. While the CFTC deems cryptocurrency as commodities, the Internal Revenues Service (IRS) classifies them as property. Hence, once an individual purchases any amount of digital currency, they are creating a taxable event. 

The outlook on the future of cryptocurrency taxation and adoption is however based on more theory than practice. What community participants fail to notice is just how difficult it would be for bitcoin to go mainstream. Especially if these hardly compliant participants are to comply with existing taxation laws. In fact, it is right to say that mainstream crypto adoption would turn out such a headache, if current legislatures are anything to go by. 

Like-Kind Exchange Scenario 

Another problem is crypto adoption and usage seems so simple at face value. While on the other hand, cryptocurrency taxation regards to even tiny investments is complex. Take for instance the loose translation of a section of the IRS Code Section 1031: 

“Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.”

This is quite a controversial exaggeration at worst given that it’s not at all times a crypto exchange event will result in a gain. A scenario which raises the question of a like-kind exchange. Note that exchanging Bitcoin to Ethereum, vice versa would only create a taxable event once the ethereum is converted to fiat. One of the confusing cases thereof is that of an individual crypto trader executing to and fro (fiat-crypto) transactions. Don’t you think taxation laws would overestimate the trader’s portfolio, and therefore end up overtaxing them? 

Washington-based Coin Centre is attempting to change things by introducing a more practical taxation legislature. The not for profit organization has been working with congress member to introduce a bill that can exempt low-value transactions from taxation. 

Cryptocurrencies are Treated Either as Property or Commodity 

Any event of cryptocurrency taxation following a transaction creates serious headaches among holders during tax season.

Back in 2014, the IRS published a detailed guide on cryptocurrency taxation. The guide stated that Bitcoin and other cryptocurrencies would be treated as property; hence all would incur profits if sold or bought. Thereby, the introduction of capital gains into instances of crypto purchases. This would also include crypto events for trivial purchases and payments. 

Pros and Cons of Listing Crypto as Property

IRS classification of cryptocurrencies as property brings with it several cons and one pros.. 

Pros

  • A 15% Maximum rate will apply to any cryptocurrency’s capital gains. A figure that is likely to be the lion’s share of what an average individual would report. Moreover, this figure is at least 10% less than the maximum for the normal income tax. Nonetheless, crypto miners, stakers, traders and workers accepting crypto would anticipate a narrow tax rate of 25% on their average crypto income. 

Cons

  • Compliance burden among crypto users. It’s cumbersome to track capital gains/losses, transactions, and crypto price (in US Dollars) every single time. Sometimes the pricing varies with exchanges. Hence placing a large burden on regulator requirements for reporting all transactions taking place. 
  • The Internal Revenue Service caps the amount of deductible loss for all property transactions at an annual $3,000 sum. Therefore tightening and offsetting big investment losses against the average taxation bill. 

However, the prices of major digital currencies have a tendency to bounce. Therefore, reporting of values following bounces would pose a great challenge to daily crypto users. The 2020 Virtual Currency Tax Fairness Act is attempting to address this problem.  Representatives of both Democrats and Republicans parties introduced the bill to the US Congress today. The legislature will ensure that low-value crypto transactions are easy to execute. 

Representatives Schweikert, Emmer, DelBene and Soto introduced the new act to parliament. The measure will allow tax authorities to exempt cryptocurrency transactions from taxation. In fact, the initiative would similar to the exemption of small value foreign currency de minimis. As a result, individuals using cryptocurrencies would not have to report transactions that created a gain/loss of less than $200. 

Coin Centre has been working round the clock for a feasible solution that would lead to massive crypto adoption. The Washington based research group released a report claiming that it had collaborated with Schweikert and DelBene; in a bid to attract attention from lawmakers.

 

Filed Under: Bitcoin News, News, Opinion Tagged With: cryprocurrency industry, Crypto Adoption, Crypto Regulations, Securities and Exchange Commission

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