U.S. bill to exempt small virtual currency transactions from CGT [pdf]

[jotakami]

This provision already applies to transactions in foreign currency; that is, if I take a trip to Japan and exchange $1000 for yen, I don’t have to report gains every time I buy something as the exchange rate has fluctuated since the time I made the initial conversion.

This bill would include digital currency under that rule, so buying a cup of coffee with Bitcoin would no longer trigger recognition of capital gains income.

I think the headline should be modified to make it clear that 95% of purchases of goods and services using digital currency would be exempt from gains, but that most crypto transactions are for trading and investing purposes anyway so gains would still be recognized.

[david_draco]

If that's true, that makes a huge difference. AFAIK, the fraction of transactions for goods is minuscule.

[nostrademons]

I wonder if market-making or other HFT trading strategies would (accidentally) fall under this law, though. There you naturally end up with lots of very small gains that happen frequently, of essentially random amounts.

[mrleiter]

In non-legal terms: if you gain less than $200 from personal transactions, this amount is not included in your gross income, hence not subject of capital gains tax. If it is more, the whole amount is taxable.

So if you gain $199, it‘s tax free. If you gain $201, the whole $201 is treated as gross income and hence taxable.

[HenryKissinger]

Why couldn't a crypto millionaire simply automate every transaction in chunks of $199 and avoid taxes then?

[throwaway_tech]

If you were interested in tax free trading of cryptocoins, one hack is to set up a self-directed IRA LLC, so you have checkbook control. Then you could fund the LLC through your IRA and the LLC crypto trades are tax free (subject to IRA compliance of course).

[mattferderer]

No tax loss harvesting either though, which for most people I've talked to seems to be the better value.

[Ambele]

That sounds incredibly smart because crypto taxes are a huge headache to do yourself and crypto-tax preparers charge $500-$1000/year. Does having the LLC increase your tax complexity? If so, by how much?

[LiquidSky]

A good general rule of thumb is if you think you've found some clever simple "hack" to get around tax or other regulations, it's probably not as clever as you think and has already been accounted for.

[semi-extrinsic]

https://xkcd.com/1494/

[petercooper]

Does the US have any sort of capital gains allowance? In the UK you can make £12000 (about $16000) of capital gains every year tax free so this covers most smaller investors, etc.

[yrro]

Note that this "annual exempt amount" is on top of an individual's personal allowance (defaults to £12500). If you had no other income in a tax year, you'd only pay Capital Gains Tax on gains over £24500.

[dannyw]

The long term capital gains rate is 0% if your income is $0 to $39,375; so essentially your first $40k of capital gains is exempt if you have no income.

For the purposes of this calculation, your cap gain is added to your income to work out your bracket.

[topmonk]

The problem isn't the total cost, it's the reporting requirements. Who wants to look up and record the fair market value of bitcoin and then calculate gains every time they use it to buy a coffee?

[jotakami]

Nope

[awt]

When are they going to stop using fixed dollar amounts in laws as if they didn’t know in a decade $200 will be worth way less than it is now? Kind of a slap in the face.

[dang]

Proposed bills rarely go anywhere, and so are not on topic for HN unless there is something else that's significant about them. The only reason they ever seem to get attention is because of something sensational in the proposal, and those are invariably the least likely proposals to get enacted.

If something comes of this, we can discuss it then. On HN there's no harm in waiting.

[gbronner]

The headline should be amended to emphasize that de minimus and economically insignificant transactions would be exempt.

I doubt compliance is high now, and the reporting burden exceeds any likely amount of races collected, especially as it would force filers to use differentirs forms.

[mnemotronic]

Does an Electronic Funds Transfer (EFT) qualify as using a "virtual currency"?

‘virtual currency’ means a digital representation of value that is used as a medium of exchange and is not otherwise currency under section 988.

[paulmd]

no, because it's currency under section 988

no court in the world is going to find that a bank account denominated in dollars is not "currency" just because you're not holding actual canvas bags with dollar signs on them.

"we see a lot of programmers here..." https://xkcd.com/1494/

[ainiriand]

Seems reasonable, I think in Spain is 400Euro for common shares.

[jklein11]

If I am a merchant who accepts crypto as pent what is my tax liability? How do I determine my cost basis if I only price my goods in crypto?

[sokoloff]

Your cost basis is in notional USD as a US taxpayer. It’s not different than if you bartered for sacks of wheat and priced everything in sacks of wheat. (Actually, it’s probably more clear what the BTC/USD cross is than what the SoW/USD cross is.) If you took the midpoint of any spread, you’d almost surely be safe. You could also probably argue to use a different point in the spread as long as you do it consistently.

[albntomat0]

What's an investor's ability to do do a large number of $200 transaction, rather than one large transaction?

[TheCoelacanth]

Severe criminal penalties if you get caught structuring transactions to avoid the reporting limit.

[spir]

As a technical matter, it will be cheap and convenient for an Ethereum user to buy $200 of an asset one hundred times instead of $20,000 of that asset once.

Programmatic money has a blurring effect on the definition of a "transaction".

[unlinked_dll]

I don't see why income can't be treated as income no matter where it comes from.

[afthonos]

The tax system in the US is commonly used to encourage behaviors the state finds desirable and discourage others. Capital gains are taxed lower because of the perception that that money will get reinvested and that investments are good for the economy.

[jotakami]

Because there is a reporting burden to keep track of income, and the more nit picky you get about reporting all income the more deadweight loss you impose upon society as they waste time on accounting for trivial transactions.

[leetcrew]

one reason other replies haven't mentioned is that long-term gains don't play well with a progressive income tax system.

imagine you make $35k salary and you make an investment that increases in value by $50k over ten years. we'll ignore inflation and tax bracket hikes for simplicity. assuming you live in the US, your salary places you in the 12% bracket, and the 22% bracket starts around $40k income. if you realize that gain in the last year and it counts as income, almost all of that $50k gets taxed at 22%, despite the fact that "on average" you only made $40k each year. this effect gets worse the longer you hold onto the asset.

[jshaqaw]

The issue is double taxation. Income at the corporate level is already taxed at corporate tax rates (albeit these were significantly higher before a Trump). When a profit is realized by selling shares that same income is effectively taxed a second time so the lower rate compensates a bit for that. Personal income is only taxed once.

[thomascgalvin]

Sounds like a senator just bought a bunch of bitcoin.

[sailfast]

Maybe a Congressperson sees the possibility of crypto currency as a currency and wants to lower barriers on behalf of companies working on this?

[AmericanChopper]

Would have to be ~0.023 BTC or less for them to benefit from this.

[dexterdog]

Or somebody with a lot of Bitcoin just bought a senator or two.

[EGreg]

DID THIS BILL PASS??

It took me a moment to realize CGT was Capital Gains Tax.

Is this per country or summed over all countries? Is it per transaction? If per transaction, this is a pretty massive loophole.