US Crypto Regulation is Coming, Get Prepared

On Friday, 29th of May 2021, the United States of America government, led by President Joe Biden, released its budget for 2022. This budget was the first since Biden became president, and it came with two new proposals. The proposals contained instructions for the Treasury Department concerning the kind of information that financial institutions will be asked to give to the Internal Revenue Service (IRS) and the other divisions of the Treasury Department. This article expands on the proposal and its effects on the cryptocurrency industry.

An Overview of the US proposal on Crypto Regulations

In the first proposal from the budget, it is stated that there would be an extension in the level of information that brokers report concerning cryptocurrency assets. This statement is further explained in the Green Book of the Treasury Department. It says that extension implies that brokers would have to give comprehensive details of any institution that partners with the United States.

Quoting the document, “The proposal would require brokers, including entities such as U.S. crypto-asset exchanges and hosted wallet providers, to report information relating to certain passive entities and their substantial foreign owners when reporting concerning crypto assets held by those entities in an account with the broker.”

The cryptocurrency industry is a digital world that permits people to make transactions with heavy sums within and outside the US without paying taxes. In their reports, brokers would have to expose their total sales, gross proceeds, and the identity of foreigners who own a substantial share of passive entities. The Treasury Department discussed this proposal and explained that income earners had utilized crypto assets to evade tax payments. This proposal from the U.S. government would help to curb such activities.

There is yet more information in the proposal that regulates crypto operations. The second proposal in the budget focuses on a detailed financial transparency structure to ensure tax compliance. This second proposal demands financial institutions communicate the account data of every customer. The report will include an analysis of every transaction that involves a minimum of $600.

Quoting the proposal again,  it says, “Separately, reporting requirements would apply in cases in which taxpayers buy crypto-assets from one broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have to report such transactions.”

This proposal correlates with another proposal from the Treasury Department released a week before the government released its budget. The Treasury Department’s proposal proposed that all businesses would have to report any transfer that exceeds $10,000 in crypto assets to the Internal Revenue Service (IRS).

Effects of the Proposal on the Cryptocurrency Industry

The U.S. government’s budget proposal is one of the baby steps in the government's intervention to answer questions on the value and use cases of crypto assets on a large scale. A 2019 report from Brookings Economic Studies concerning crypto regulations suggested that implementing rules will do the following;

● Bring about new technologies that will benefit the cryptocurrency industry

● Curb the use of cryptocurrency for illegal activities, and

● Abate cyber attacks

Experts believe that there will be further efforts from the government to regulate the use of crypto assets.

The die has been cast, and it is crucial for active people in the cryptocurrency market. Those who have crypto-assets should keep track of all their transactions. The IRS treats cryptocurrencies like property taxes (i.e., taxes depend on profit or loss incurred). As a law-abiding citizen, keeping track of your cryptocurrency transactions will help you know when to comply with the new regulations and evaluate how you or your business can be affected.

Below are a few tips that will help you follow up with all your crypto transactions.

● Know how much money you put into your cryptocurrency account, whether the value appreciates or depreciates.

● Know when (date) and where (digital wallet) you store the cryptocurrency.

● Keep a record of every transaction you make out of your cryptocurrency wallet.

Alternatively, you can hire a tax professional with good experience in the cryptocurrency industry. You can also use cryptocurrency tax software to do your taxes when it is time.

Conclusion

The cryptocurrency industry contributes to a small part of the financial market today. However, the sector has excellent potential for growth in the decades to come. This is why the government is stepping in to regulate the industry before it grows beyond control.