The Scenario - News Update
A pass was made on a bipartisan infrastructure bill voted by the U.S. House of Representatives that contained controversial taxes on cryptocurrency, aiming to report the crypto taxes.
As per sources, the House cast their vote in favor of the bill with around 218 ayes late Friday night, fulfilling Biden administration priority amid controversy on whether this Democrat-led bill would make the move. Originally, in the month of August, the Senate had passed the bill after lawmakers shot down attempts on amending the provision of crypto.
As a matter of fact, the crypto industry was rather concerned about the reporting of tax within the bill that had sought to expand the broker’s definition for Internal Revenue Service purposes. The requirements of reporting would be to view all transactions of brokers, reporting under the current tax code.
The industry proponents were worried that this definition would be broad, and might capture entities such as miners and other parties who facilitate transactions. Adding on, there were other provisions that were included in the bill in order to amend the tax code section 6050I that also stoked fear of the crypto industry.
This law that was written nearly 40 years ago applied to in-person cash transactions of over $10,000, which essentially requires recipients to verify the information of the sender. Also, to record their Social Security number, nature of the transaction, along with the other information and report the same to the government, within 15 days.
Therefore, unlike the tax code violations, any violations of 6050I are known to be felonies, also pointed out by a few lawyers applied to cryptocurrencies, including digital assets like NFT (non-fungible tokens), making it impossible to comply with the law.
This pushback against the provision held the passage of the bill in the Senate, that is, where the bill originated, giving a chance to the industry and modifying the language. Ultimately, the Senate passed the bill without adopting any amendments, despite the 11th-hour effort of securing the change.
The Treasury Department must still explain the plans to interpret the bill, as well as, publish guidance on how businesses or other entities can comply with the law.
The Crypto Infrastructure Bill: What Are The Effect Of The Infrastructure Bill Crypto On The Traders?
The US President, Joe Biden had signed a $1.2 trillion bipartisan crypto infrastructure bill on November 15, 2021, that included some new legislation that all crypto investors must be aware of. (Will discuss the same later in the blog)
This new infrastructure bill will need brokers, or cryptocurrency exchanges to issue a 1099-B form. That means, moving forward, the crypto exchanges will be required to directly notify the IRS of crypto transactions.
According to Grant Maddox, independent CFP in South Carolina, “The infrastructure bill will signify the end of hiding most gains for the crypto investors. In return, which will create tax reporting challenges for most investors of crypto”
For crypto investors who use their crypto wallet, the information reported on the 1099 form to the IRS will be prone to inaccuracy as there is a limit on the view of what the investors paid for crypto in the first place.
Crypto Infrastructure Bill: How Must The Crypto Investors Respond To This New Law?
For those crypto investors who plan on staying on the right side of the IRS, especially with the addition of this new law pertaining to investments, here are two things to help and keep in mind:
- Keeping Track Of The Cost Basis
It is extremely important to keep a track of what you originally paid for in the cryptocurrencies with much accuracy. This is to reconcile the exchanges that are being reported to the IRS.
- Finding A Crypto-Knowledgeable Tax Professional
It can be extremely important to find a crypto-knowledgeable tax professional as it helps you to accurately report the crypto investments to the IRS. This includes transparency with regards to what cryptocurrency you hold and pay.
As we are aware, the IRS issued a Notice 2014-21 which stated that cryptocurrency is considered as taxable property, even before this new legislation. The requirements defined reporting raise the stakes for the crypto investors, making sure that the crypto investors are reporting their activity with much more accuracy and complete information.
Cryptocurrency coins or any other digital currency is prone to notoriously volatile big price swings given by the day, even by an hour. While the ideal situation could be to invest in better-established crypto coins like Bitcoin and Ethereum; it is important to keep in mind that these “big” and “known” cryptocurrencies have also had and still have their fair share of ups and downs in the crypto market.
Having said that, since cryptocurrencies are a fairly new asset in the market space, these could be easily influenced by anything, including a tweet by a celebrity on the crypto coin, or the new government regulations that may or may not impact the investment class.