Congress Eyes Crypto Relief: New Bill Could End Taxes on Small Bitcoin Purchases

• Senators propose a tax break for small crypto buys, aiming to simplify transactions under $200 and boost everyday use.
• Current tax rules make small crypto purchases cumbersome; a new bill could remove capital gains tax for transactions under $200.
• Virtual Currency Tax Fairness Act could ease crypto adoption by eliminating capital gains taxes on low-value transactions

Talks about Bitcoin are rife in Washington, D.C., particularly since high-profile individuals like Senator Cynthia Lummis and former President Donald Trump expressed support for a strategic Bitcoin reserve at the Bitcoin 2024 conference. 

A more key proposal that hasn’t gotten as much attention but is nonetheless vital has surfaced in Congress, though: exempting tiny cryptocurrency transactions from taxes.

Challenges of the Current Tax Regime

The existing tax structure is a barrier to using cryptocurrencies. Things like using Bitcoin to purchase coffee, which ought to be a simple transaction, become more complicated due to capital gains taxes.

Individuals are already required to disclose each transaction’s gain or loss, cost basis, holding time, and sale price. The process is complicated and time-consuming because Schedule D of Form 1040 is where this information must be entered.

Furthermore, the rates on capital gains are intended to promote long-term holding. This essentially deters individuals from making purchases with cryptocurrencies. If you use your cryptocurrency assets before a year has gone by, the government levies a tax penalty that is similar to a prohibition on receiving your paycheck early.

Proposed Solution: The Virtual Currency Tax Fairness Act

Senators Cynthia Lummis and Kirsten Gillibrand, with new support from Senators Ted Budd and Kyrsten Sinema, have introduced the Virtual Currency Tax Fairness Act to address this issue. 

The bill aims to create a de minimis exemption from capital gains tax for low-value cryptocurrency transactions, as described by Coin Center’s Landon Zinda. This proposal would eliminate capital gains taxes on cryptocurrency purchases under $200, applying only the sales tax to such transactions.

Key Considerations and Potential Issues

However, the exemption applies solely to transactions made for goods or services. Capital gains taxes would still apply to cryptocurrency used for cashing out or for purchases intended for flipping or reselling. 

Additionally, the bill attempts to prevent people from evading the $200 threshold by aggregating transactions. While this approach seeks to block-structured transactions, the specifics of this condition remain unclear.

While the focus on a strategic Bitcoin reserve has captured headlines, the proposal to remove tax barriers for small cryptocurrency purchases is crucial. This change would lower the obstacles to everyday cryptocurrency use and encourage broader adoption. Therefore, it is vital to recognize and support this important legislative effort.