Cryptocurrency in the Form of Coins

The House of Representatives approved the infrastructure bill passed by the Senate in August 2021. Included in the provisions of the law are how cryptocurrency investors report their gains or losses to the IRS.

Today’s blog from The Whitlock Co. looks at how cryptocurrency investments might be affected now that the $1.2 trillion infrastructure bill is the law of the land.

Related Post: Taxing Issues Related to Cryptocurrency

What does the infrastructure bill change about cryptocurrency and taxes?

Any investors in cryptocurrencies must pay a capital gains tax, just like investors in traditional securities such as stocks and bonds. However, cryptocurrency investors don’t follow the same reporting requirements as other securities.

When you sell stocks or other securities as an investment, you receive Form 1099-B from your investment broker. The broker also sends a copy of this form to the IRS. You will use this form to report net capital gains or losses on Form 1040, Schedule D when you file your taxes at the beginning of the year.  

The infrastructure bill will bring cryptocurrency investments into this same kind of reporting. For example, you invested in Bitcoin in February 2021 and then sold it in December 2021. The provisions of the infrastructure bill, if they become law, would mean you receive a Form 1099-B in January or February 2022 outlining the gain or loss in that particular investment from whatever third party through which you purchased the security.

Transactions above $10,000 or more would be reported to the IRS once the third-party broker transfers these assets to another account. As it stands right now, any money transfers of $10,000 or more between bank accounts or to and from bank accounts must have an informational form transmitted to the IRS. The goal here is to prevent money laundering. Cryptocurrencies would fall under this same reporting requirement under the infrastructure bill if it passes Congress and becomes law. 

Does this bill change the taxable amount of cryptocurrency?

No, it just increases the reporting done for the investment.

Why is this reporting important?

The main reason Congress is doing this is to make it easier for cryptocurrency investors to see precisely how much money their investment gained or lost based on the investment broker’s reported figures. The IRS can then match the reported numbers to those on an income tax return to make sure the returns are accurate. 

What does the bill say, exactly?

Section 80603 of H.R. 3684 imposes new crypto asset information reporting requirements on brokers. The Sec. 6045(c)(1) definition of “broker” in the U.S. Code is expanded to include anyone who for consideration effectuates “transfers of digital assets on behalf of another person.” For these purposes, the bill defines “digital asset” as “any digital representation of value which is recorded on a cryptographically secure distributed ledger or any similar technology.”

The bill would amend Sec. 6045A to require brokers to provide information returns reporting any transfers of digital assets to accounts that are not maintained by a broker.

Related Post: Taxation of Cryptocurrencies: What You Should Know

Contact The Whitlock Co. to Answer All of Your Tax Questions

Do you have cryptocurrency investments? Do you have questions about how to pay taxes on them? Contact The Whitlock Co. for sound tax planning and tax advice.