The CryptoCurrency Tax Fairness Act

A lot of people across the US who use digital currency such as bitcoin for small purchases face a big problem : under current tax rules, any little transaction — like buying a cup of coffee — can be considered a capital gain, and trigger an obligation to the IRS (Internal Revenue Service).

It began on March 2014 while IRS announced that cryptocurrencies like Bitcoin are treated as property, which means gains from sale or exchange are taxed as capital gains rather than ordinary income.
This is in contrast to how foreign currencies are treated, which do enjoy an exemption. Say you buy 100 GBP for $ 130 because you’re spending the week in UK. Before you get to UK, the exchange rate of the Euro rises so that the 100 GBP you bought are now worth $ 140. When you buy a chocolate with your GBP, you experience a gain, but the tax code has a so called de minimis exemption for personal foreign currency transactions, so you don’t have to report this gain on your taxes. You’re good to go and no need to pay tax.
Such an exemption does not exist for non-currency property transactions. This means that every time you buy a cup of coffee, or an MP3 download, or anything else with bitcoin, it counts as a taxable event. If you’ve experience a gain because the price of Bitcoin has appreciated between the time you acquired the bitcoin and the time you used it, you have to report it to the IRS at the end of the year, no matter how small the gain. Obviously this creates a lot of friction and discourages the use of Bitcoin or any cryptocurrency as an everyday payment method.
The taxing of digital currencies has become a big issue because the price of digital currencies has soared so dramatically. Bitcoin, for instance, has soared from $ 1,000 at the start of 2017 to a recent high of $ 8,000 — meaning that anyone who has sold it or exchanged it or goods at retailers is on the hook to declare capital gains and pay the tax.

CryptoCurrency Tax Fairness Act

A solution may be on the way. A new proposal by US lawmakers in the form of CryptoCurrency Tax Fairness Act (CFTA) introduced in the House of Representatives. It propose for Congress to create de minimus exemption for transactions under $ 600. The purpose would be to remove the friction and encourage the development of this innovative technology and its use in payments.