Thanks to a new bill introduced yesterday in the US Senate by Senator Toomey (R-PA) and Senator Kyrsten Sinema (D-AZ), Americans may be able to buy coffee with crypto without validating a taxable event. The Virtual Currency Tax Fairness Act provides a de minimis exemption for gains under $50 on personal trades and for personal trades under $50.
“While digital currencies have the potential to become a regular part of everyday American life, our current tax code stands in the way,” said Senator Toomey. “The Virtual Currency Tax Fairness Act will make it easier for Americans to use cryptocurrencies as everyday payment by exempting small personal transactions like buying a cup of coffee from tax.”
Removing the tax barrier can not only encourage those who hold the cryptocurrency to use it more as a means of payment, but can also help those who already use it and are not aware of the potential consequences of very small purchases. “We’re protecting Arizonans from surprise taxes on everyday digital payments, so as the use of digital currencies increases, Arizonans can keep more of their own money in their pockets and continue to thrive,” Senema said.
Under current law, a taxable event occurs each time a digital asset is used. For example, if you used digital assets to buy a cup of coffee, the person would owe capital gains on the transaction if the digital asset supported the value, even if the asset is only worth a fraction of a penny.
In November 2021, the Pew Research Center noted that 16% of Americans had invested, traded, or used cryptocurrency. “The use of virtual currencies for retail payments continues to grow in popularity, making it important for Americans to understand their tax obligations,” said Kristin Smith, CEO of the Blockchain Association. “By providing an exemption for small everyday purchases, the Virtual Currency Tax Fairness Act eases the burden on consumers and enables greater use of virtual currencies for more people. We are proud to support this bipartisan bill in the Senate.
Various payment companies designed so that trading companies that receive cryptocurrency are likely to have benefited from this new type of law. “Cryptocurrency needs the same exemption for small personal transactions that we have for foreign currency,” said Jerry Brito, CEO of Coin Center. “This promoted the use of crypto for retail payments, subscription services and microtransactions. More importantly, it promoted the development of a decentralized blockchain infrastructure in general, as networks rely on small transaction fees that today expose users to compliance- frictions that undoubtedly cost the blockchain more.”Savings than tax revenue otherwise generated. We are very grateful to Senators Toomey and Sinema for introducing the Virtual Currency Tax Fairness Act, which returned American leadership in cryptocurrency.
The Crypto Council for Innovation, one of the new industry groups consisting of Paradigm, Coinbase, Fidelity and Square, also supported the bill. “We applaud the bipartisan leadership of Senators Toomey and Sinema. Their legislation is forward-thinking and improved on the utility of this new technology,” said Sheila Warren, CEO of the Crypto Council for Innovation. “With 1 in 5 Americans owning or using crypto, greater regulatory clarity supports the next stage of the industry’s growth. We look forward to helping policymakers in the work ahead.”
Companies that want to allow consumers to use digital assets for merchant payments are also likely to support such a bill. However, the president’s latest budget shows revenue from collecting taxes on cryptocurrency gains, which could prove to be a barrier to offering any kind of tax exemption.