The U.S. Treasury is proposing to expand tax treatment for the Defi space, requiring additional tax reporting for foreign crypto transactions, expanding tax requirements for foreign crypto accounts that exceed $50,000, and allowing actively traded digital assets to be marked-to-market.
What is Mark to Market?
Mark to market (MTM) is a method of measuring the fair value of accounts that can fluctuate over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution’s or company’s current financial situation based on current market conditions.
What Do The New Crypto Reporting Requirements Mean?
In this budget proposal, the treasury would no longer simply classify cryptocurrency as a security or commodity and tax it as such, this mark-to-market policy would be implemented under the rules set for a new category of assets. This is seen by some analysts to be an official legitimization of the cryptocurrency space.
According to the Treasury, Yellen and her team would have power over which digital assets are considered actively traded. This entails assessing whether the asset is bought and sold for U.S. dollars or other fiat currencies on exchanges that provide credible valuations and whether there are reliable price quotes available.
The treasury is estimating an additional $11 Billion in revenue stemming from these new reporting rules.
The new proposals also allow the United States and foreign nations to exchange information about crypto transactions conducted on domestic exchanges for tax purposes, which is currently possible with international trading of conventional assets like stocks.
This will help the IRS crackdown on tax evasion. By sharing information with foreign governments and vice versa, as well as investors that report real-time asset values in mark to market, the new measures will target tax evasion.
Because the industry is entirely virtual, U.S taxpayers may trade across offshore digital asset exchanges and wallet providers without leaving the country.
Who Is Impacted by the new Crypto Tax Regulation?
At this time, it looks like this affects those who:
- Hold Crypto in Foreign Accounts with a Value in Excess of $50,000
- Day-Trade or High-Frequency Trade Cryptocurrencies
Industry analysts and pundits have noted that these changes are coming as part of a large wave of regulation sweeping the cryptocurrency space globally. While some are wary of the increased government involvement, others are excited at the opportunity that regulatory clarity may bring to the space.
It’s important to note that large financial institutions and some of the biggest players in the crypto space have been waiting to receive clarity from the US government.
Currently, the regulatory ambiguity in the crypto space has prevented large-scale institutional players from getting fully involved in the industry. They welcome any sign of improved clarity as they look to expand their digital lines of business.
What Should I Do?
Firstly, keep up to date with the ever-changing regulatory environment. Being an informed investor is truly more important than ever, and your future returns will thank you.
Secondly, it’s important to remember that this budget proposal and the crypto regulations entailed would have to be enacted by congress. If you fall into the impacted categories, set up a meeting with your accountant to structure a plan for your assets.
The crypto space is global and rapidly evolving. With so many moving parts – the best thing you can do to protect yourself is to have a plan and keep track of all of your transactions.
Need help with that? Check out our tax planning service!