Bi-partisan bill would create tax exemption for crypto used for small personal transactions

Reporting and taxation of cryptocurrency (crypto) and other virtual currency transactions is an increasingly important concern and burden for more and more taxpayers and tax professionals that advise their clients. The IRS has indicated that virtual currency transactions are taxable just like transactions on any other property. The agency notes that “taxpayers transacting in virtual currency may have to report those transactions on their tax returns.“

Taxation of transactions involving virtual currency

The IRS states that the sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability. In short, if the digital assets used in a transaction have increased in value, the taxpayer would currently be subject to capital gains tax.

The agency has issued some guidance and FAQs, but much more guidance is needed as crypto and other virtual currencies transactions have become more complex and mainstream.

The Virtual Currency Tax Fairness Act

In an attempt to lessen the reporting and tax burden on individuals who use crypto to pay for small purchases, a bi-partisan bill was introduced in the Senate on July 26th that would exempt small crypto purchases from capital gains tax.

Sens. Pat Toomey (R-Pa.) and Kyrsten Sinema (D-Ariz.) introduced a bill that would provide an exemption for personal transactions using crypto of less than $50 or personal transactions that have gains of under $50 from being subject to a capital gains tax.

The Senators’ stated goal here is to encourage people to use crypto for small trades and transactions without being subject to taxation requirements.