A non-partisan group in the US legislature recently proposed a new bill titled “virtual currency tax fairness act.”
Highlights Of This New Bill
The bill’s primary objective is to make it easy for crypto holders to settle their taxes. Hence, the government can make profits (albeit small) from those who aren’t paying tax on their capital gains. It isn’t the first time such a bill has been proposed; In January 2020, Washington and Arizona reps (Suzan Delbene and David Schweikert). But the bill didn’t get any vote. This new bill is sponsored by Florida and Minnesota reps (Darren Soto and Tom Emmer), who are crypto advocates.
This bill will include a new section into the 1986 internal revenue code, called “gain from disposition of virtual currency.” However, many industry analysts are skeptical because it isn’t sure that the house will vote on it or even pass it into law. A vote may not take place because of the small change the bill brings. Digital asset holders will only pay tax when their profits exceed $200. The ambiguity lies in calculating the difference in the amount the asset was sold vs. when it was acquired.
A Complex Tax Calculation Process
As of this writing, a tax event is the record of the purchase of any virtual asset. This record is important as it would be used to determine the gains made from holding the asset once the asset is either sold or used to make a purchase. Currently, digital asset holders can easily make this calculation like shareholders would do because most of them trade these assets for price speculation. They purchase and sell in large amounts through crypto exchange platforms.
But, holders usually state that their primary reason for holding these assets is spending purposes. That is, they intend to spend them gradually for a long period. The consequence of this false declaration of purpose is that calculating the tax on the gains becomes a complicated process.
For instance, if someone holds $1K worth of BTC but uses part of it to make purchases, another portion for trading purposes, and holds onto the rest. It will be complex to calculate the tax for all these transactions. It is an open secret that the prices of digital assets are hugely volatile. They can raise or dip by up to 60% within a couple of months.
The tax calculation process becomes more complex because BTC is the only accepted payment method in the Satoshi economy. Thus, most users would be at big risk if audits were to occur because they completely disregard regulation policies.
Holding To Become Rich
Hence, it is no wonder that many digital asset holders have adopted the ‘hodl mentality.’ it helps them view these digital assets as investments and not a payment method. Furthermore, governments are doing everything possible to make these digital assets less valuable than the national currencies they can control. Many users are also sticking to the hold mentality because they won’t have to pay huge transaction charges for small items.