Tax exemption on small cryptocurrency transactions in U.S.
Transactions using cryptocurrencies, such as Bitcoin, receive more and more attention from tax authorities. Some of the developed countries have already introduced laws requiring Bitcoin traders to report their transactions for taxation purposes. For example, the U.S. Internal Revenue Service (IRS) started a hunt for users of cryptocurrencies as a relatively small number of those users report their transactions. In the U.S., cryptocurrencies are considered to be property for tax purposes. Thus, wages paid to employees or contractors as well as any capital gains obtained by using cryptocurrencies have to be reported to the IRS.
The issue of cryptocurrencies and tax compliance
The compliance with cryptocurrency transactions became a widely-known issue in the U.S. when the IRS targeted the cryptocurrency exchange platform Coinbase. This high profile case demonstrated that the level of compliance in the domain of cryptocurrencies is still low because only 802 transactions using cryptocurrencies were reported in 2015 and millions others remained unreported. To enhance legal compliance, the IRS even deployed a dedicated software application for identifying possible tax fraud.
Seeking for a solution
To lessen the tax burden on Bitcoin users, on 7th of September 2017, two U.S. politicians (Jared Polis and David Schweikert) introduced to the U.S. Congress a bill aiming to “amend the Internal Revenue Code of 1986 to exclude from gross income de minimus gains from certain sales or exchanges of virtual currency, and for other purposes”. The bill proposes to exempt for tax purposes financial transactions that (i) do not exceed USD 600 and (ii) use virtual currencies. Consequently, if the bill is accepted, taxpayers will not need to track small purchases made by using virtual currencies. A similar exemption is valid in the U.S. for personal transactions using foreign currencies.
U.S. Cryptocurrency Tax Fairness Act
It is worth mentioning that lawmakers in the U.S. are active in the field of cryptocurrency regulation. A bipartisan bill entitled Cryptocurrency Tax Fairness Act of 2017 has been introduced recently with the aim to (i) start treating cryptocurrency in the U.S. as currencies and not as property and (ii) require the U.S. Treasury Department to issue guidelines on reporting cryptocurrency currency transactions that result in capital gains.