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After several years of apathy toward regulating cryptocurrency, and then a period of blanket regulations placed against digital currency, we’re finally beginning to see the advent of a new attitude towards the regulation of digital assets. With a greater understanding of the currencies and how they operate, lawmakers finally seem willing to work with laws that are specific to the issues that digital currencies face, allowing for regulation that is much more pertinent, and fair, to the new medium of trade.
In February 2022, a bipartisan group of lawmakers introduced the Virtual Currency Tax Fairness Act, which seeks to introduce some leeway for crypto users. Previously, the regulations around cryptocurrencies treated them as an asset, similar to traditional assets like stocks, which led to several issues with the practical use of these currencies. The Virtual Currency Tax Fairness Act changes the reporting requirement for digital currencies to exempt any transaction resulting in less than $200 of profit, which will make utilizing cryptocurrency in our everyday lives much easier, as well as our taxes.
Currently, your individual tax return will ask if you have had any transactions involving cryptocurrency over the course of the past tax year, regardless of their value or context. This means that if you’re buying something small with your cryptocurrency, even something as insignificant as your lunch for the day, you’re forced to track and report that exchange on your taxes just as you would a stock trade. This system has been criticized for ignoring the use of these assets as everyday currency, thus limiting its ability to be used as such.
Hopefully, changes like this will continue in the future, further expanding the viability of cryptocurrency, and accounting for the specifics of how they operate. The existing regulation around cryptocurrency still faces issues of being broad, and not accounting for the nuances of how digital currencies operate differently from physical currencies. Specifically, a big change for cryptocurrency users would be if the currency was no longer treated similar to stocks – when we spend dollars to buy our lunch, there’s no need to include the exchange in our capital gains tax. While this reform is a step in the right direction, until these barriers are removed they continue to stand in the way of the adoption of cryptocurrency as an everyday means of transaction.
Tax law is constantly shifting, which can sometimes lead to trouble for those with more complicated portfolios. If you’re in need of assistance in defending yourself from dealings with the IRS, contact us today at (305) 374-5544 to schedule your consultation.
Weisberg Kainen Mark, PL
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