The Virtual Currency Tax Fairness Act of 2020? Remember back in 2017 when the entire bitcoin community was debating over the actual use of Bitcoin in everyday transactions? The argument heated up as it was getting more and more expensive to do micro transactions in Bitcoin, both due to rising prices and mining fee.
The question is relevant today as well, as the Bitcoin network continues to carry on. It was argued that the main reason behind Bitcoin’s stunted growth has been its exclusion from everyday transactions. Will it ever be feasible to use Bitcoin to buy a coffee at Starbucks or pay for you subway ticket at the nearby station?
Although the problem is quite prevalent and persistent, it doesn’t stop regulators from speculating its likeliness when the problem will actually be solved.
What is the Virtual Currency Tax Fairness Act of 2020
The US Government’s Stance on Cryptocurrency Gains
In January 2020. US Senators Suzan DelBene, David Schweikert, Darren Soto and Tom Emmer introduced “The Virtual Currency Tax Fairness Act of 2020”. The VCTFA 2020 is basically an amendment to IRS tax code that would exempt cryptocurrency based gains under $200.
According to the bill, anyone with gains under $200 in a tax year won’t have to report anything cryptocurrency related on their tax returns. This means that any gain below $200, that is either realized or spent on goods and services. They fall below the minimum threshold and therefore need not be reported to the IRS. The exemption is traditionally known as a de minimis threshold.
In 2016, the United States made an amendment that raised the de minimis value threshold from $200 to $800 for all goods. The VCTFA proposes a special clause in the bill for gains on cryptocurrencies and other forms of Digital Assets.
One particular extract of the bill mentioned, “Gross income of an individual shall not include gain, by reason of changes in exchange rates, from the disposition of virtual currency in a personal transaction (as such term is defined in section 988(e)).
The preceding sentence shall not apply if the gain which would otherwise be recognized on the transaction exceeds $200.”
As the bill passes, tax payers can start considering their tax gains before 31st December 2019. They’re to be reported in the next tax year.
Taxing Your Crypto Gains
Worldwide, the regulations and taxation policies with respect to cryptocurrencies has been in the grey area for too long. Crypto users of many countries across the world have no idea how to file their cryptocurrency income or gains. Even worst for those using them for daily transactions.
The question is that how should a person who has earned crypto through some sale or service? What about those who made profit off the buying and selling of crypto file his/her tax statements?
If a person earns his salary in crypto, should he convert them into the sovereign currency? Or should he file it on the face value of the crypto at the year’s end?
What if he decides to spend his crypto earnings, should he pay tax before spending those earning or after?
If he is allowed to spend before tax, then can he spend all of it before the year’s end? Will that do away with paying tax? The Questions pile on.
And so, there is a dire need for Governments to come out with their stance on what they think the laws should be. Since cryptocurrencies are a new asset class altogether, it is the responsibility of the Government to clear the fog for their citizens so that innovation could strive.
With the US Government lending the way with introducing the VCTFA, other countries will take note to amend the laws as well.
As an expert on Bitcoin-related topics, I’ve found myself as a Journalist at CEX.IO – cryptocurrency exchange. I’m working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.