A pair of U.S. senators have introduced a bipartisan bill to exempt low-value cryptocurrency transactions from capital gains tax reporting requirements.
Legislation introduced on Tuesday (July 26) by Sen. Pat Toomey, R-Pa., and Sen. Kyrsten Sinema, D-Ariz., would exempt any transaction of up $50. It would also exempt any cryptocurrency trade in which the buyer earned less than $50. The capital gains reporting threshold is a vital facet of the long-term viability of cryptocurrencies, which under the current law require capital gains of any size to be reported to the Internal Revenue Service (IRS).
“While digital currencies have the potential to become an ordinary part of Americans’ everyday lives, our current tax code stands in the way,” said Toomey, adding that the bill would allow people to “use cryptocurrencies more easily as an everyday method of payment by exempting from taxes small personal transactions,” CoinDesk reported.
An Impractical Burden
At present, the IRS says that if you buy a Coke at a gas station using bitcoin, you have to report the transaction as a separate capital gains event, figuring out how much you paid for the particular cryptocurrency used — and many people buy crypto repeatedly to build up holdings — and comparing that to what its price was at the time you made the purchase. Any increase means the tax man gets a cut of up to 20% — two to three times what you’d pay in all but a handful of the most expensive U.S. locales.
While that isn’t as bad as the average bitcoin transaction fee of several dollars — at least on low-value transactions — that’s a problem that the crypto industry is beginning to solve.
In April, for instance, Jack Mallers, CEO of bitcoin payments firm Strike, demonstrated the ability of the Bitcoin Lightning Network to turn transaction fees of several dollars into the fractions of a penny that make cryptocurrency transactions a viable means of payment for low-value transactions.
How Low Can You Go?
Still, the Toomey-Sinema bill’s $50 limit is well below the $200 transaction threshold proposed in a House bill of the same name for the past two sessions.
That’s a potential problem, as it means anything from a $75 blouse to a dinner for two at a casual dining restaurant like TGI Friday’s or Olive Garden would likely end up with not only a substantially higher cost but also a huge reporting time burden — either one of which raises serious questions about the viability of crypto payments.
That $200 limit was also proposed by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., in their comprehensive crypto regulation bill.
However, those senators recently admitted that it will not be possible to get that broad a piece of legislation passed this year as Congress heads into the midterms.
Moreover, there is good reason to question whether even $200 is too little to be effective. In the EU’s recent Markets in Crypto Assets (MiCA) legislation debate, regulators argued that a 1,000-euro minimum for anti-money-laundering reporting would overwhelm their capabilities.
Then there’s one other thing. If you don’t file that capital gains tax report you are, technically, evading taxes, even if you’re just buying a Coke. Is the IRS going to charge you for that? Of course not — unless they’re looking to charge you with something or make you settle a bigger issue.
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