The Internal Revenue Services (IRS) is working on developing crypto tax regulations and their effort can be seen in Notice 2014-21. This notice explains the existing tax principles applicable to transactions involving virtual currency.
While the IRS is working on regulating crypto taxation, a lot of renowned US senators are working to reduce the tax inconvenience every time the virtual currency changes hands. Now, the senators cannot abolish the crypto tax 100 percent, but they have introduced a bill that would exempt taxpayers from reporting transactions that are less than $50 or any income less than $50 they earn.
Kyrsten Sinema (D-Ariz.) joined hands with Sen. Patrick Toomey (R-Pa.) to propel the bill forward that exempts crypto users from paying taxes on small purchases of investments. Their bill is called the Virtual Currency Tax Fairness Act and it is a similar effort undertaken by the House of Representatives. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) also introduced the same but more comprehensive bill with the idea of freeing small investors from tax worries.
Toomey believes that digital currencies have the potential to become a part of American taxpayers’ everyday lives, but the tax code gets in the way. He is doing everything he can to help the crypto investors on multiple tracks before retiring from the Senate. He also believes that their bill will help people use digital currencies in their everyday lives by removing taxation on small personal transactions such as buying a cup of coffee.
However, the IRS stands firm on its policy, which states that taxpayers trigger a capital gain or loss when they sell their virtual currency. It was also declared on their website. This policy is one of the major roadblocks in the way of crypto investors using cryptocurrencies in their daily lives to pay for things, according to industry experts.
The experts also believe that this bill will allow crypto users to pay for subscription services, retail payments, and microtransactions. More importantly, it would work in the favor of decentralized blockchain development as they rely on small transaction fees that are hampered by taxation worries.
What Should We Do Until the Bill Passes?
The passing of the Virtual Currency Tax Fairness Act might take some time. So, what should taxpayers do to take care of their crypto taxes on micro-transactions? As we know that keeping track of all the crypto transactions for crypto tax reporting can become an inconvenience. In such cases, they can use a crypto tax rate calculator. And, if you are looking for an excellent crypto tax rate calculator, ZenLedger, an analytics company that simplifies cryptocurrency taxes, offers one.
How ZenLedger’s Crypto Tax Rate Calculator Works
ZenLedger offers unrivaled accounting transparency and you don’t have to worry about calculating crypto taxes because it provides a tax review in a separate spreadsheet, which you and your CPA can review.
The calculator uses the Grand Unified Accounting (GUA) output method. CPAs and Accountants love this method because it gives them the liberty to adjust a transaction to fit the investor’s best popsicle tax outcome.
Final Thoughts
The senators are doing their best to reduce the tax headache of a regular crypto investor. When the bill passes, investors and traders won’t have to worry about small transactions. But, until then they can use the crypto tax rate calculator to reduce the tax calculation inconvenience.
FAQs
1. How is crypto tax calculated?
Whatever amount of cryptocurrency you decide to sell, you’ll either have to pay a short-term capital gains tax or a long-term capital gains tax. If you sell within a year of buying the crypto token, you have to pay short-term capital gains tax. And, if you sell after a year, you have to pay long-term capital gains tax.
2. How do I avoid crypto tax?
You should not avoid paying the tax deliberately because the IRS knows about all your transactions. However, you save some taxes by using these tips.
- Gifting virtual currency to someone doesn’t create a taxable event. However, keep the exemption amount in mind.
- Transferring the tokens is not a taxable event. If you transfer them to another wallet, exchange, or account, it is not considered a taxable event.
- Buying crypto tokens with USD is not a taxable event. You have to pay taxes only when you sell.
- If you receive tokens in a hard fork, you don’t have to pay taxes on it.
3. Do you pay taxes on crypto if you don’t sell?
No, if you don’t sell your crypto tokens, you don’t have to pay taxes on them. The IRS looks at virtual currency as property, instead of a currency. If you buy it and hold on to it, you are not liable to pay taxes on it.
