Crypto Bill Could Ease Tax Burden on Bitcoin Transactions

A new bill could ease tax reporting pressure on Bitcoin investors. Rep. Jared Polis, D-Colo., and Rep. David Schweikert, R-Ariz., introduced a bill on Thursday that would eliminate reporting requirements for cryptocurrency purchases up to $600.

Since 2014, the IRS has classified Bitcoin and other digital currencies as property. Investors who receive digital currency must report the gain in their gross income based on the fair market value of the currency at the time it was received.

(Related: International Regulatory Shift Could Tame Cryptocurrency Market)

Digital currency miners who receive the currency as compensation for their work may also be subject to self-employment tax.

Not that there are many investors who are actually reporting those gains. Fortune reported in March that just over 800 taxpayers filed a Bitcoin-related Form 8949 reporting property gains or losses in 2015.

(Related: Do Your Clients Have Unreported Bitcoin Gains?)

Under the bill introduced on Thursday, gains from the sale or exchange of virtual currency in transactions for other than cash or cash equivalents would be excluded from gross income up to $600. The bill also proposes annual inflation adjustments equal to cost of living adjustments.

“Cryptocurrencies can be used for anything from buying a cup of coffee to paying for a car to crowdfunding a new startup, and more and more consumers are choosing to use this type of payment,” Polis, co-chair of the Congressional Blockchain Caucus with Schweikert, said in a statement. “To keep up with modern technology, we need to remove outdated restrictions on cryptocurrencies, like Bitcoin, and other methods of digital payment.”

Polis hopes that “by cutting red tape and eliminating onerous reporting requirements, it will allow cryptocurrencies to further benefit consumers and help create good jobs.”

Schweikert noted that while cyrptocurrencies are used all over the world for everyday transactions, the U.S. has fallen behind in adopting and regulating this technology. “With this simple legislative change, anyone can make digital payments to buy a newspaper or a bike without worrying about tax code challenges,” he said in that statement.

Jerry Brito, executive director of Coin Center, a think tank, praised the bill, noting it would treat cryptocurrencies similarly to foreign currencies.

“Not only will this create a level playing field for digital currencies, it will also help unleash innovation on applications like micropayments, which can consist of dozens of transactions per minute and thus are difficult to square with the current law,” Brito said in a statement.

Cryptocurrency investors would still have to report gains on transactions over $600 as capital gains.

“There are many other transactions above $600, such as getting in and out of investment positions, on which capital gains tax will be owed. Today, you are responsible for keeping track of and accurately reporting every cent of gain,” Brito said in a blog entry.

--- Read Crypto Performance 20x Higher Than Traditional Asset Classes on ThinkAdvisor. 

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.