Senate infrastructure bill cracks down on crypto tax reporting


August 6, 2021: -As U.S. Senators hammer out the $1 trillion bipartisan federal infrastructure bill, a provision in the measure seeks to introduce funds with a crackdown on cryptocurrency tax reporting.

The rule also requires cryptocurrency brokers to report traders’ information, which includes purchase and sales prices, transfers between brokers, and transactions of over $10,000 to the IRS.

According to the Joint Committee on Taxation, the proposed enforcement may bring in an estimated $28 billion over the next decade.

“This should have been required a long time ago,” said Eric Pierre, an Austin, certified public accountant based in Texas, owner of Pierre Accounting, and co-host of the CPA Huddle podcast.

Presently, investors must disclose virtual currency activity by checking a box on the first page of their tax return. Although, financial experts say there’s confusion about what else investors need to divulge.

“I think a lot of people want to do the right thing,” Pierre said.

“They don’t want the IRS on their back, but they do not understand how it’s supposed to be reported,” Pierre added.

Although the IRS treats virtual currency such as other assets, like stocks or bonds, it can be difficult to calculate their profit or loss. That’s because cryptocurrency brokers are not required to provide Form 1099-B, which outlines an investor’s transactions.

While few digital currency exchanges issue Form 1099-K, typically used for someone with more than 200 transactions worth over $20,000 per year, it doesn’t show the purchase price, known as the so-called cost basis.

Without the asset’s starting value, investors can’t quickly determine the profit for capital gains taxes.   

“There’s no real reporting or tracking mechanism, and it’s up to do a lot of subjective analysis,” Pierre said.

Moreover, many investors did not realize day-to-day activity may be taxable.

The new proposal may require cryptocurrency brokers to report purchase and sales prices, which makes it much easier for the IRS to track profits, resulting in higher tax bills for some investors.

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