The Virtual Currency Tax Fairness Act was introduced by Senator Ted Budd and cosponsored by Senators Kyrsten Sinema, Kirsten Gillibrand, and Cynthia Lummis. The bill proposes a de minimis exemption from capital gains tax for low-value cryptocurrency transactions in everyday use.
Currently, every time someone spends cryptocurrency, a taxable event occurs. If an individual buys a cup of coffee with bitcoins, they must calculate and report any gains experienced and pay taxes on those gains. This includes reporting to the IRS at the end of the year if there is a gain due to Bitcoin's price appreciation between acquisition and usage, regardless of how small the gain might be. This requirement creates friction and discourages using Bitcoin or any cryptocurrency as an everyday payment method.
Under the Virtual Currency Tax Fairness Act, any transaction under $200 would be exempt from capital gains tax. This means individuals would not need to track gains or losses on small purchases or owe taxes on minor changes in value. The proposed exemption mirrors similar exemptions currently enjoyed by foreign currencies.
Cryptocurrency networks often involve tiny transactions worth fractions of a penny. People executing transactions and computational operations on networks like Ethereum incur small fees. Under current IRS guidelines, users must track the acquisition price and disposal price of these minuscule amounts for each transaction recorded on the blockchain. While tracking each disposition is impractical, taxpayers are required to record and report their gain or loss on these small fees.
The IRS guidelines discourage the use of cryptocurrency technology while offering minimal potential revenue for the government. Exempting small personal transactions from capital gains taxation would foster retail transactions using cryptocurrencies and innovative transacting methods such as micro-transactions.
"We have been advocating for a solution like this for years," stated proponents of the bill. "We are proud to have worked with Senator Budd and his cosponsors to have this bill reintroduced in the Senate. We look forward to continuing to work to support and promote this policy agenda to ensure clarity in crypto tax treatment."
