Bipartisan legislation to exempt low-value cryptocurrency transactions from reporting requirements for capital gains taxes has been introduced by two U.S. senators.
Sens. Kyrsten Sinema of Arizona and Pat Toomey of Pennsylvania introduced legislation on Tuesday (July 26) that would exempt any transaction up to $50. Any cryptocurrency transaction where the buyer received less than $50 would also be exempt.
The threshold for capital gains reporting is essential to the long-term viability of cryptocurrencies, as current law mandates that capital gains of any size be reported to the Internal Revenue Service (IRS).
The bill would make it easier for people to use cryptocurrencies as an everyday payment method by exempting small personal transactions from taxes, according to Toomey.
“Digital currencies have the potential to become an ordinary part of Americans’ everyday lives, but our current tax code stands in the way,” Toomey said.
An Unrealistic Burden
Currently, the IRS mandates that if you pay for a Coke at a gas station with bitcoin, you must report the transaction as a separate capital gains event.
To do this, you must calculate how much you paid for the specific cryptocurrency used—many people buy cryptocurrency repeatedly to build up holdings—and compare that amount to the price of the currency at the time you made the purchase.
Any increase results in a tax cut of up to 20% for the government, which is two to three times what you would pay in all but a small number of the most expensive U.S. cities.
That’s a problem that the cryptocurrency industry is starting to solve, even though it’s not as bad as the typical bitcoin transaction fee of several dollars, at least on low-value transactions.
For instance, in April, Jack Mallers, the CEO of bitcoin payment company Strike, showed how the Bitcoin Lightning Network could reduce transaction fees from several dollars to a few cents, making cryptocurrency transactions a practical method of payment for modest-value transactions.
Can You Go Any Lower?
The $200 transaction threshold suggested in a House bill of the same name for the previous two sessions is significantly lower than the $50 limit in the Toomey-Sinema bill, though.
In their comprehensive crypto regulation bill, senators Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., also included that $200 cap.
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These senators recently acknowledged that, as Congress approaches the midterm elections, it will be impossible to pass such a comprehensive piece of legislation this year.
Furthermore, there is cause to doubt whether even $200 is enough to be beneficial. Regulators argued that a 1,000-euro minimum for anti-money-laundering reporting would exceed their capacity during the recent EU Markets in Crypto Assets (MiCA) legislation debate.
There is one more thing, though. Even if you just buy a Coke, it counts as tax evasion if you don’t file that capital gains tax report. Are you going to be charged by the IRS for that? Unless they want to accuse you of something or force you to resolve a bigger issue, of course not.
