America’s cryptocurrency tax policy lacks clarity, and this has been difficult to deal with for many crypto possessing Americans of late. Regulators and lawmakers have been under pressure from the Congress for some time now, to draw up more comprehensive taxation policy.
Earlier this month, US Congressmen sought clarity on crypto taxation from the IRS by writing a strongly worded letter to them. It seems that the growing unrest in the House of Representatives over the murky crypto taxation policy, is finally being manifested in some concrete action.
Currently, “virtual currency” is supposed to be treated as property for federal tax purposes, according to IRS guidelines published five years ago. Just buying and holding crypto won’t mean that you have to pay crypto taxes.
However, if you use your crypto to buy anything, then you have to keep track of the price difference between the value of the cryptocurrency when you first bought it and when you spent it. If the value has gone up, it is known as a capital gain, and then you have to pay taxes on it.
This is so because capital gains, which are profits an investor realizes when selling an investment, are taxable under federal law. Tom Emmer from Minnesota is leading a group of legislators, who are putting pressure on the IRS to update the guidance it published in 2014.
This according to Emmer, is the need of the hour, becasue there remains “substantial ambiguity on a number of important questions about the federal taxation of virtual currencies.”
Also, taxation policy is unclear on hard forks. When a hard fork occurs and a new divison of coin emerges from the original one, is it supposed to be taxed in the same manner as the original one. Many more such questions have been raised, but no answers have been forthcoming.