U.S. President Biden signed the Infrastructure Investment and Jobs Act, which came into effect on January 1 this year. Under the provisions of the bill, cryptocurrency brokers are required to report transactions worth more than $10,000 to the Internal Revenue Service (IRS). These reports need to include personal information such as the sender's name, address and Social Security number.
However, as soon as the bill was passed, it was widely criticized. The crypto industry believes it would be very difficult to require brokers to collect relevant transaction information upon request. Many legislators have also proposed additional legislation to amend this reporting requirement.
The latest announcement on the official website of the IRS stated that until the Treasury Department and the IRS issue regulations, companies do not have to report digital asset receipts like cash receipts, such as those exceeding $10,000. Reportable circumstances for cryptocurrency transactions.
The Infrastructure Investment and Jobs Act amends the rules to require taxpayers to report receipt of cash in excess of $10,000 while engaged in a trade or business and treat digital assets as cash. To facilitate the smooth implementation of the new regulations, the Treasury Department and IRS issued Notice 2024-4PDF, which provides transitional guidance. Under this special provision, the Treasury Department and the Internal Revenue Service are required to issue corresponding regulations before they take effect.
The Treasury Department and the Internal Revenue Service plan to release proposed regulations that would provide more information and procedures for reporting digital asset receipts and allow the public to comment in writing and even at public hearings.
The definition of crypto assets by the US Internal Revenue Service
The IRS issued a notice on virtual currency transactions as early as 2014 (Notice 2014- 21), clarifies the treatment of virtual currencies for federal income tax purposes. According to the notice, all crypto-assets are considered property rather than currency, and therefore the normal tax principles applicable to property transactions apply. This means that most crypto asset transactions are subject to capital gains tax.
The IRS defines cryptoassets broadly to include any digital representation of value recorded on a cryptographically secure distributed ledger or similar technology. The scope includes convertible virtual currencies, cryptocurrencies, stablecoins, non-fungible tokens (NFTs), etc.
Cryptoasset Transactions Involving Capital Gains Tax
Capital Gains Tax Events Involving Cryptocurrency Include:
Converting Cryptocurrency to Fiat Currency
Giving Cryptocurrency
Using cryptocurrencies to purchase goods and services
Exchanging one crypto-asset for another, etc.
Being engaged in crypto-asset transactions that involve capital gains tax When doing so, investors need to subtract its cost basis from the sale price to calculate the capital gain or loss and pay the corresponding capital gains tax.
Last March, Biden proposed several cryptocurrency tax reform proposals in the 2024 federal budget.
First, the capital gains tax rate for investors with annual income exceeding US$1 million will increase from 20% to 39.6%.
Second, any company that uses computing resources (whether owned by the company or leased from others) for mining needs to pay a consumption tax equivalent to 30% of the cost of electricity used for mining.
Third, cryptocurrencies will eventually be subject to wash sale rules like stocks, meaning investors can no longer avoid taxes through aggressive losing trades.
The digital asset tax system in the United States is an area that is constantly changing and developing. With the rapid growth and innovation of the digital asset market, both tax agencies and taxpayers need to adapt to new challenges and opportunities. Investors should remain aware of and understand the U.S. digital asset tax system and make reasonable and legal tax planning based on their specific circumstances.
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