New stance on crypto by U.S. Government. What should investors do?
The use of cryptocurrency for tax evasion might be a thing in the future. As suggested by The U.S. Treasury last week, The American Families Plan proposes changes to reporting cryptocurrency as part of income tax submissions. If the plan is adopted, businesses and crypto exchanges will need to register transactions with a fair market value of $10,000 or more to the IRS.
Deposit as much as $10,000, and you’ll be fine. If you do enter a considerably more significant amount than this, like $100,000 or more, the bank might be required by law to report this information to the federal government.
The report warns that non-traceable transactions facilitate the commission of tax evasion and other illegal activities.
What It Means
The Treasury’s proposal is a small step towards the type of regulatory framework that will help understand all the questions around investment value and potential uses of cryptocurrencies in the U.S. economy.
Government regulation will benefit crypto investors to develop new technologies and help curtail some illicit uses of crypto-assets. We should prioritize new ways to reduce the risks of cyberattacks, resulting in collateral damage to other parts of the financial system.
It is not yet clear what implications the latest Treasury regulation will have. However, policymakers’ approach towards cryptocurrency regulation is likely to be similar to that taken by other financial institutions such as banks.
What You Should Do
No matter what happens with this proposal, make sure you keep up-to-date records of any cryptocurrency transactions or transfers. Today, the IRS taxes cryptocurrencies as properties, meaning your sale and trades are subject to taxes on the capital gains or losses incurred.
If you hold cryptocurrency, tracking the following throughout the year will simplify reporting them at tax time. It could also help understand how other regulatory actions might affect your cryptocurrency holdings.
- Know your cost basis (the money you’ve put into cryptocurrency, regardless of increase or decrease in value)
- The date you acquired any crypto
- Where your crypto is held
- Any transactions or transfers you make in and out of crypto exchanges or wallets
It would help if you didn’t rely solely on crypto exchanges to provide tax documents at year-end, as it’s common for people to have crypto from more than one provider. If you’re in the crypto industry, it might be worth considering hiring a tax pro or using cryptocurrency-specific tax software when it comes time to do your taxes. Doing so will ensure you are reporting accurately this year.