The cryptocurrency space has been on the grayer side of the financial space since its conception. But with bitcoin and the traditional financial and crypto sector in general getting more intertwined, the government now seems to have found a way for cryptocurrency to be taxed.
The past year has been difficult for cryptocurrency. Collapses from big industry players like Three Arrows Capital, Celsius, and just recently FTX had a strong effect on how much the government is now paying more attention to the crypto industry.
Bitcoin: Clear And Specific Regulation Required
Although cryptocurrency is already being taxed through capital gains tax, there is no specific regulation that taxes cryptocurrencies directly, only the gains made on trades. In the early half of 2022, the Department of Treasury released the “Green Book” or their tax policy proposal.
One section of the proposal is entirely dedicated to bitcoin and cryptocurrency brokers and how digital assets should be taxed. In a nutshell, the Treasury’s proposal will:
“Require certain financial institutions to report the account balance (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) for all financial accounts maintained at a U.S. office and held by foreign persons.”
Image: The Military Wallet
This is because of FATCA or the Foreign Account Tax Compliance Act which basically monitors possible illegal financial moves by legal U.S. entities. The proposal, if enacted into law, will not only make the U.S. have access to information on American-held assets, it would also allow the country to share financial information on non-American accounts with partner jurisdictions.
However, there is no evidence yet that the proposal has been changed or not since the Treasury has been quiet ever since.
How Will The Superpower Nation Do It?
Cryptocurrency regulation is not new. Just this week, Italy passed a law that requires traders to pay capital gains taxes just like the one in the United States. Regulation on emerging markets has been growing stronger, which leaves the question of what Uncle Sam would do.
With the wounds still healing from the past year’s devastating bear market, the U.S. Federal Reserve might be holding off on a major announcement. This might be because of the current fear, uncertainty and doubt (FUD) surrounding the cryptocurrency market right now.
BTC total market cap at $331 billion on the weekend chart | Chart: TradingView.comAn announcement that bitcoin would be directly taxed now might put downward pressure on the crypto market. With that said, a regulation like that strikes against the core tenet of crypto which is decentralization.
But if the U.S. government can make the policies clear, it might spark new interest in bitcoin and the cryptocurrency industry as a whole and help it grow.
However, it remains to be seen what politicians will do to make the country competitive in the crypto market.
As of writing, Bitcoin is trading at $17,211, up 3.6% in the last seven days, data from Coingecko show.
Florida leads in U.S. crypto tax-friendliness due to no state income tax and supportive policies. New York ranks lowest with a 10.9% income tax and BitLicense. The IRS eases reporting rules, exempting businesses temporarily. Investors must grasp local tax nuances to avoid potential losses.
BerniceIn a recent statement, the US Treasury Department explains that digital asset transactions will not be subjected to identical reporting requirements as cash until more precise regulations are established.
AlexRegulators are gearing up to release detailed procedures for reporting digital asset receipts, signaling a shift in crypto regulations.
ZoeyUS citizens face consequences with a cryptocurrency tax obligation, effective from December 31, 2023.
ZoeyThe Blockchain Association issues a scathing 33-page comment to the U.S. Treasury and IRS, cautioning that a proposed redefinition of the word "broker" in a federal tax rule could severely impact or force offshore any decentralized finance (DeFi) project in the United States. The proposed change broadens the term "broker" to include any centralized crypto exchange or DeFi project facilitating the transfer of digital assets, subjecting them to the same reporting rules as traditional financial brokers. The Blockchain Association argues that applying this standard to DeFi projects is impractical, could lead to privacy issues, and may drive U.S.-based DeFi projects abroad.
Huang BoBoth centralised and decentralised exchanges will be impacted by the new rules.
AlexBitcoin (BTC) has once again found itself in the crosshairs of government scrutiny.
BitcoinistAlthough this practice would imply that the Chinese government may have finally recognized the legal status of cryptocurrencies, the reality is more complex.
FinboldFirst article in a series of articles about crypto taxes: Understanding crypto tax implications is critical whether an experienced crypto trader or gift receiver.
M6 LabsWith the market falling off a cliff, there will be big losses to claim on your taxes, right? Well, let’s break it down in detail.
Cointelegraph