Cryptocurrencies in the US are tricky, since spending crypto-assets leads to a taxable event. Even though digital currencies are an easy and convenient payment method, the US regulatory agency do not act as if digital currencies are only digital representations of value; they treat it more of as a legal asset or as a foreign currency.
Cryptocurrencies and the Demand for Fair Taxation
Cryptocurrencies and other digital currencies are considered as commodities to the Commodity Futures Trading Commission (CFTC), the US financial watchdog. On the other hand, the US tax authority, or the Internal Revenue Service (IRS), define that cryptocurrencies are assets or intangible property. However, many traders consider digital funds as foreign currencies, rather than digital representation. This is an emerging issue since when a crypto-user exchanges crypto-assets for a commodity or another currency; the IRS defines this as a taxable event. It is also a taxable event when an individual spends digital currencies or trades it.
Cryptocurrencies are considered extremely unpredictable and volatile, since they are still in their infancy phase. As an example, BitCoin has increased its value by over twenty percent in this year. However, no matter how small for the trading and expenditure of digital currencies, the current rules and regulations demand on being informed on all property trades. This could be dreadful for tax day to the traders who use crypto-assets for daily spending.
The Approach of Congress
Cryptocurrencies are an issue that has not been taken lightly; since a group of US legislators and a research group, Coin Center, have been working on introducing a solution. Last week, Representative Suzan Delbene has broached a proposal to amend the legislation that exists on virtual currencies. The legislation, the Virtual Currency Tax Fairness Act, has been gaining support from several representatives of Congress. It basically states that all personal spending of digital currencies and cryptocurrencies will be exempted from taxes. If the transaction or digital exchange would lead to a gain of less than two-hundred dollars, then there would be no need for a report.
According to a report on the legislation analyzed by Coin Center, the research center has been working closely with representatives from Congress to reintroduce the bill. If the bill has been passed, then the new bill would make spending cryptocurrencies resemble that of spending foreign currency. This would makes things much easier for crypto-asset spenders, who rely on cryptocurrencies on a daily basis.