What the Biden administration means for cryptocurrencies
Tax time is here again, and many people are wondering about taxes on bitcoin or other cryptocurrencies. One firm predicts that 2021 will bring wider taxation and regulation for them. In a recent report, Peltz International predicted that there would be more regulation and tax scrutiny of cryptocurrencies starting this year.
The Biden administration on cryptocurrencies
The firm said some thought Joe Biden’s administration would be good for cryptocurrencies. Biden selected Gary Gensler to become the new commissioner of the Securities and Exchange Commission. Gensler is in favor of cryptocurrencies and has even taught courses on them at MIT. Thus, he could form a team of regulators to work on the issue.
However, since Peltz wrote its paper, Janet Yellen, who’s expected to be confirmed as the Treasury secretary, voiced concerns about cryptocurrencies and called for lawmakers to contain them. Thus, whatever happens to them during the Biden administration will be a mixed bag.
Peltz pointed out that the acting comptroller of the currency said early last month that new crypto regulations would be on the way. However, he downplayed worries that those rules would be disruptive. He said the rules would speed up cryptocurrency adoption by big players in the financial industry.
Peltz expects tax issues involving cryptocurrencies to come to the forefront in 2021. The Internal Revenue Service and other global tax authorities are seeing digital currencies as a possible revenue source.
The IRS said in 2014 that it would treat bitcoin as property instead of money. That means the agency treats any crypto transaction as a taxable event like a stock or real estate sale. Cryptocurrency sellers are subject to capital gains taxes. The size of the tax depends on how long it was held and the cost basis in the asset. If the cryptocurrency was owned for at least a year, it could qualify for a long-term capital gains rate of 0%, 15% or 20%.
Anthony Tu-Sekine of Seward and Kissell told Peltz that the IRS would start looking more closely at whether people are reporting their gains on bitcoin sales this year. He said the agency has the tools to check tax returns against publicly available information and data from crypto exchanges. Tu-Sekine expects the IRS to start taking enforcement actions against individuals, making it clear that they must pay taxes on their crypto-related gains. He said even though many crypto transactions are occurring in the U.S., very few tax returns report gains on bitcoin sales.
Whatever future changes may come for crypto taxes, using a cryptocurrency tax software like Taxbit can give you the confidence you need to know your taxes are filed correctly.