Will Bitcoin Transactions Be Tax Exempt in the United States?

The United States government has decided to deal with the cryptocurrency market and to introduce legislation that would regulate this market in a way to prevent money laundering, financing of terrorism, and other illegal activities. While many were expecting news from the U.S. Congress about that bill, today a news came that several members of the House of Representatives are preparing it and that concerns cryptocurrencies.

According to those reports, two members of the U.S. Congress are preparing a bill that demands that purchases made with cryptocurrencies be exempted from taxes. However, there is a catch, because this bill would not be applied to all purchases. Only those transactions under $600 would be exempted from the tax.

Bitcoin Taxation Debate

The debate on whether or not to tax Bitcoin in the United States has been going on for more than three years. In 2014, the U.S. Internal Revenue Service announced that they are considering taxation of Bitcoin. However, in order to do that, they would have to recognize Bitcoin as a kind of property. Since then, there has been a huge debate about this issue but nothing has been written in stone at least for now. Eventually, the IRS went on with their plan and each purchase with cryptocurrency has been taxed.

However, the IRS decision was poorly written and with a huge number of loopholes. Because of that, it does not matter if you bought a penthouse in New York or a cup of coffee using the Bitcoin or any other cryptocurrency – you would have to pay tax. Besides that, if you have bought a Bitcoin for one dollar, let’s say, and you bought a cup of coffee worth $2 with that Bitcoin, you would have to pay tax on the difference.

Creating Better Legal Framework

Representatives David Schweikert and Jared Polis are trying to pass a bill that would eliminate many loopholes from that decision. Besides that, these two members of U.S. Congress are members of the Congressional Blockchain Caucus and they have been familiar with the cryptocurrency market and what this tax meant. Because of that, they decided to deal with the Cryptocurrency Tax Fairness Act and to introduce changes that might bring a lot of novelties for people who use Bitcoin for smaller transactions.

A huge part of the creation of this bill was Jerry Brito who is an executive director of the non-profit organization called Coin Center that deals with the promotion of cryptocurrencies in the United States. Brito and two members of Congress seem to be very optimistic about this bill and they believe that it will not be a problem for the bill to pass in the House of Representatives that is being run by the Republicans.

The bigger problem might be passing this bill in the U.S. Senate as there are different rules of the game and each senator is a subject to huge lobbies that could possibly see this bill as a threat to their business or their income. However, a positive thing is the fact that the Republicans in the United States have called for less federal control and the reduction of taxes. Because of that, this bill might be a part of their tax reform that they have been announcing for a long time.

Written by Ivan Potocki