U.S. Senators announce bipartisan bill to exempt small crypto transactions from taxes


A new bill introduced in the Senate seeks to make it easier for people to use cryptocurrencies for everyday purchases. It would create a tax exemption for certain transactions, such as those involving digital currency.

The "Virtual Currency Tax Fairness Act," introduced by Sen. Pat Toomey and Sen. Krysten Sinema, would also exempt certain types of transactions involving cryptocurrencies from taxation. This is very important for the industry's long-term viability as it currently requires capital gains to be reported to the IRS.

The Senate Committee on Housing, Urban Affairs, and Banking announced that the bill would make it easier for people to use cryptocurrencies for everyday purchases. It would also create a tax exemption for small transactions.

Senator Toomey, the committee's chairman, stated that the current tax code prevented cryptocurrencies from becoming integral to Americans' lives.

"While digital currencies have the potential to become an ordinary part of Americans' everyday lives, our current tax code stands in the way." Toomey said. "The Virtual Currency Tax Fairness Act will allow Americans to use cryptocurrencies more easily as an everyday method of payment by exempting from taxes small personal transactions like buying a cup of coffee."

Impractical tax burden

Currently, the transaction is considered a taxable event whenever someone uses cryptocurrencies to pay for a purchase. If the currency's value goes up, even if only by a fraction of a cent, the person would be liable for capital gains taxes.

For instance, the IRS considers a purchase made using bitcoin a capital gains event. It requires people to report the transaction, determine how much they paid for it, and compare the price of the currency with the price at the time of the purchase. An increase in the value of a transaction would result in a significant rise in the taxman's take.

Generally, the amount of tax is not higher than the transaction fees on Bitcoin's network. But the crypto communities are working towards a lower transaction fee network.

In April, Jack Mallers, the CEO of Strike, demonstrated how a payment network known as the Bitcoin Lightning Network could process low-value transactions with minimum fees. Through this process, he said that cryptocurrencies could be a viable alternative for people who want to pay with a small amount of money.

The bill seeks to create a tax exemption for certain transactions using cryptocurrencies as long the amount is less than $50. It would also prevent people from making gains from virtual currency sales.

Receiving supports

The bill has the House and Senate's support. In February, two congressmen from Arizona and Washington introduced a different version of the legislation that would have exempted certain types of transactions involving cryptocurrencies from taxation.

The House of Representatives has also supported the bill. In February, two congressmen from Arizona and Washington introduced a different version of the legislation that would have exempted certain types of transactions involving cryptocurrencies from taxation. The previous version of the bill, introduced by David Schweikert and Suzan DelBene, would have allowed individuals to make gains with cryptocurrencies that are less than $200.

Despite the support, the senators recently indicated that it will not be possible to pass the legislation this year.