In case you haven’t already heard, Congress recently passed a 1.2 trillion “infrastructure bill.”
And as is often the case with such legislation, it’s stuffed with a plethora of peripheral measures that have nothing to do with “infrastructure.” One of which directly impacts Cryptocurrency.
So, what’s the latest from the federal government on this burgeoning digital asset investment? In short, there are two major issues crypto investors should be concerned with…
Filing 1099-B Form Now Required
The new law requires cryptocurrency exchanges (now considered equivalent to stock or investment brokers under the new law) to issue a 1099-B on all crypto transactions.
What’s a 1099-B?
It’s a tax form itemizing all investment transactions made during that calendar year that stock and investment brokers are required to send their clients annually. And in turn, taxpayers must submit this form with yearly income tax filing.
How does this reporting shift impact investors?
Most notably, this requirement closes a loophole that allowed investors to under-report crypto gains. The IRS engineered this mandate in hopes of increasing tax revenue on crypto transactions.
Unfortunately, this requirement fails to take into account that crypto is often used as a literal currency rather than an investment vehicle. And when crypto is traded for goods and services, its value is not measured in the same fashion.
Let’s say you pay for a construction project with crypto. The project quote was $5,000, but you exchanged crypto technically valued at $8,000.
In this scenario, you’re not only paying taxes well above typical sales tax, as this exchange triggers a capital gains tax, you’re also required to pay capital gains on the $8,000 valuation rather than the actual $5,000 project quote.
How Are Valuation Discrepancies Reconciled?
Another pitfall in formalized reporting requirements is that each exchange, now defined as a broker, calculates its crypto value basis differently. This makes subsequent reporting of value especially difficult when an exchange strictly handles the sale of crypto.
For example, what if the selling exchange in a transaction values crypto at $80 per token, while the original issuing exchange values the same crypto at $100 per token? Which figure should be the reported value?
Digital Assets Worth $10,000 or More Traded in Business Transactions Now Considers Same as Cash
Current rules state cryptocurrency transactions are considered asset trades rather than traditional purchases.
In seeming conflict with these rules, the new law requires any person “engaging in business or trade” that receives payment in cryto for goods or services valued over $10,000 to report said transaction on IRS Form 8300.
On this form, the filer must report:
- Name, address, and TIN of the person from who the crypto was received
- The amount of crytpo received
- And the transaction date
This latest requirement, however, does not take effect until the 2023 tax year. Thereby exempting your 2021 and 2022 tax filings.
Questions About How This New Legislation Impacts You?
If you have a sizable cryptocurrency investment, this new law will more than likely impact your upcoming tax filing.
To what extent all depends on the details or your particular situation. And if you have questions, I strongly encourage you to get in touch here for your FREE consultation!