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IRA Financial Blog

New IRS Crypto Tax Regulations – Episode 187

Crypto Tax Regulations

IRA Financial’s Adam Bergman discusses the new IRS Crypto tax regulations, the first legislature of it’s kind since 2014.

Cryptocurrencies, especially Bitcoin, have been in the news a lot lately due to it surging close to $14,000 recently. Though, it has slipped a bit since then, it’s still remains an interesting investment for retirement account investors. Therefore, new crypto tax regulations are on the way.

Crypto Tax Regulations

In 2014, Notice 2014-21 was the first legislation related to cryptocurrencies. According to 2014-21, virtual money was deemed property for federal tax purposes. Therefore, it would be taxed as such and could be confusing for users. For example, if you purchased Bitcoin at $1,000 and it was worth $2,000 when used to purchase an item, there was a $1,000 gain. Taxpayers would need to track every crypto purchase to see if there was a gain (or loss). This would create an accounting nightmare for those that used cryptos regularly.

It’s a little different for those that look at cryptos purely as an investment. Just like other alternative investments, like real estate, you make the investment in hopes that it will grow. When it reaches a set goal, you can sell and make a profit. Hopefully, new regulations will make using cryptos much easier.

The thought is that 2014-21 was purposely encumbering for those looking to use cryptos in the marketplace. The US, and other first world nations, want you to use their respective currencies. NOT, a currency that they do not regulate.

What May Be Coming?

The hope is that the legislation will have a “de minimis” exception. Basically, it would make cryptos easier to use for purchases. You will no longer have to keep tracks of the gains that were realized when you spent the “coin.”

There’s also talk that the now wants to be at the forefront of cryptos, much like Japan’s and Switzerland’s stance on the matter. Further, there’s the thought that companies can issue tokens to utilize their services. These wouldn’t need to deal with possibly expensive SEC regulations. No one wants to take advantage of a system if it’s going to cost them time and money.

Also, there’s a Blockchain exception that me be coming. This will allow companies that utilize the technology to not be considered money transmitters. Therefore, they would not need a money transmitter license. Again, these can be cumbersome and expensive to receive.

What I’d Like to See

Aside from the de minimis rule, there’s one more thing we really should see. Prior to the Trump Tax Plan, a 1031 Exchange could be used for cryptos. Under the Plan, it was limited to real estate transactions. A “like-kind” exchange would greatly benefit crypto users. It would be nice to be able to exchange Bitcoin for other types of cryptos, without worrying about taxes.

Opponents of this rule argue that if you want to exchange stocks (say sell Apple to buy Amazon), you’ll be taxed. The difference, is that cryptos can also be used to purchase goods and services, unlike stocks.

Get In Touch

Crypto Tax Regulations need to be updated to make better use of digital currencies. If you have any questions about the upcoming legislation, please contact us @ 800.472.0646. Thanks for listening and be sure to check out all of our podcasts!


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