Ever since the inception of cryptocurrencies, the key agenda of the proponents has been to see the crypto coins replace the conventional banking system as you know it today. So, Bitcoin gaining acceptance from the leading coffee now appears to be a real net win not only for the premier cryptocurrency but to altcoins as well.
Several projects have attempted to hasten this vision. The most realistic, however, is Bakkt, whose launch later in 2019, is heralded as the first and truly open and seamless network that will allow individuals to easily use and exchange crypto on a global scale.
The vision of cryptocurrency enthusiasts among other things is to see the coins used in business establishments the same way that people use fiat. With this vision steadily gaining shape, what implications does it have on your taxes?
In light of taxation and the regulations around it, the chances of adopting Bitcoin are recal but still meager. That notwithstanding, the Bitcoin network is nascent and has no peer on whose bench a proper comparison can be made. The possibility that the IRS shall soften or even shift regulation to allow for fluctuations on the value of fiat to address the volatility of the cryptocurrency market is past presumptuous.
The Virtual Currency Consumer Protection Act is another important aspect of this conversation that is worth mentioning. Proposed by Democrat Congressman Warren Davidson and his Republican counterpart, Darren Soto, the bill looks to amend the infamous Securities Act of 1933 as well as the Securities Exchange Act of 1994.
If the bill passes and is enacted, it will exclude certain “other than cash” transactions as long as they are US$ 600 or less. Essentially, this statement means that most day-to-day transactions completed using cryptocurrency will not amount to taxable events.
Aside from the softening regulations mentioned earlier, the De Minimis Exemption, especially its application with regards to foreign currencies may be applicable to cryptocurrencies as well. While the exemption here traditionally concerns itself with trifles, it may henceforth allow people that hold value in crypto to forego paying capital gains tax where the volatility of the crypto market or exchange rates rises just before such coins are spent.
The exemption applies only on foreign currencies, but with conventional adoption of crypto looming, it may extend to Bitcoin and the altcoins as well. The exemption will most likely factor in a determined threshold amount.
Coin Center, a cryptocurrency advocacy organization is championing for the adoption of this exemption to cover Bitcoin transactions used to purchase day-to-day goods and or services.
While all these exemptions and pro-adoption regulations are great, users should note that audit trails remain very important. If anything, you still need to prove that you disposed of your coins in a manner that does not or should not incur taxes. The easiest way to keep a sound audit trail is to use the software solutions available.
An Even Bigger Picture
At the onset, the narrative of the zeitgeist contained the idea of crypto replacing the banking system. The truth is, the finance sector has been hostile to the idea up until recently. However, this has since changed and banks are becoming cryptotrophic (1). Barclays and Goldman Sachs are both looking into Bitcoin features.
What do these moves mean for a cryptocurrency investor and his or her tax returns?
Well, as an investor, these are events you should train your eyes on. The big banks splashing resources into the cryptosphere are an indication of their trust in the space. This assertion is two-fold, it will get the IRS to look more keenly at the crypto industry, hopefully with better recommendations.
For you the investor, however, it is a good time to take advantages of whatever opportunities that may emerge. With the various pro-crypto recommendations already in the works, it is a good time to make a steady sum by investing in the space.
That notwithstanding, it is important to note that the cryptocurrency arena remains the most volatile. The tax recommendations may provide a shield but that does not mean you should throw caution to the wind.
As crypto keeps its steady match towards attaining critical mass, individuals that are using or trading in the coins should keep an eye on the latest developments. The tax arena is one such area that deserves attention.
(1) -trophic: Ecology Of or involving the feeding habits or food relationship of different organisms in a food chain.