On March 9, the United States is set to release its annual budget, and there may be modifications to the way the cryptocurrency industry is regulated. US Vice President Joseph Biden is expected to focus on limiting cryptocurrency wash sales, and the guidelines could alter how US tax laws currently treat cryptocurrencies.
In recent years, the US has seen an increase in the acceptance of cryptocurrency payments by more merchants, indicating that the crypto culture is gaining momentum. The upcoming budget plan proposed by US President Joe Biden has a few surprises for cryptocurrency traders and investors, such as a proposal to double capital gains for specific investors and to tighten regulations on crypto wash sales.
The Internal Revenue Service’s (IRS) wash-sale rule forbids a taxpayer from deducting taxes for a loss on securities sold in a wash sale. A wash sale is one that takes place when a person sells or trades an asset at a loss and then purchases the same stock or security, or obtains a contract or option to do so, within 30 days before or after the sale.
The COVID pandemic has created an inflation for the future that is twice as high as the expected average, and the Biden administration plans to present its fiscal 2024 budget proposal, which aims to reduce the deficit by approximately $3 trillion over the next ten years. According to reports, the budget proposal also includes modifications to how cryptocurrency is taxed, with the goal of raising approximately $24 billion.
One of the recommendations in the proposal is to end the tax-loss harvesting method, which involves selling cryptocurrency assets at a loss for accounting purposes and then immediately buying them again. Currently, this tactic is not allowed when stocks and bonds are involved, but cryptocurrencies are not governed by the same laws because they are not considered securities.The US government appears to be attempting to change this.
Danny Talwar of the cryptocurrency tax software company Koinly stated that the US needs to take this into account since other countries like Canada and Australia permit crypto-washing transactions. He also pointed out that the timing of the law’s implementation is crucial since many cryptocurrency investors who bought at the peak of the market in 2021 are already experiencing significant losses.
Additionally, the Biden budget suggests almost tripling the capital gains tax rate for those earning at least $1 million, from 20% to 39.6% on long-term investments. Bloomberg reports that the budget proposal also intends to increase the income taxes paid by companies and affluent citizens.
The US cryptocurrency market is currently experiencing a surge, with the American populace holding cryptocurrency worth 20%. According to a new report by business intelligence firm Morning Consult, the main motivation for US citizens to invest in crypto assets is to combat the country’s pervasive financial inequality.