President Biden signed the new $1 trillion infrastructure bill, set to modernize the infrastructures across the US, but crypto is also involved in it.
The crypto provisions in the infrastructure bill are generating a lot of confusion among crypto traders and businesses, while it is still unclear how they will impact crypto tax reporting requirements.
However, today, with the help of a crypto tax CPA, we will cover what this new infrastructure bill means for crypto.
Infrastructure bill 2021
The trillion-dollar infrastructure bill signed into law recently brings a lot of ambition to renovate and build the next age of infrastructures in the US, from bridges to airports.
But why is crypto involved? Let’s find out.
What does the infrastructure bill mean for crypto?
There are two provisions in the Infrastructure Bill that will have a significant impact on crypto:
(1) The 1099-B reporting requirement for crypto brokers.
(2) The expansion of US tax code section 60501 to include digital assets.
Infrastructure bill crypto explained
The reporting requirements for crypto brokers are generating confusion among players, as this would significantly increase the reporting requirements from miners to traders.
The increasing regulation in the crypto sector has been highly discussed across countries, especially concerning KYC/AML procedures. With the rise of decentralized finance, these concerns from financial authorities (e.g., Central Banks) are rising.
The infrastructure bill for crypto goes in that direction, but the practicability of these measures could be counterproductive and hinder the innovation and progress of the crypto industry. Let’s explore the new requirements for crypto brokers first.
Infrastructure bill crypto broker explained
There will be novel reporting requirements for crypto brokers following the new infrastructure bill for crypto.
Crypto brokers like exchanges (e.g., Coinbase) issued 1099-MISC forms for traders who had a great volume of crypto trading during the tax year. However, this form only has the total amount sold/traded during the year and not any individual trade reporting or other individual trade information such as cost basis.
The new 1099-B reporting requirement will change this, and it will require exchanges to issue a tax report with all the individual trades that users conduct, including detailed information such as sales proceeds and cost basis for each trade. This reporting requirement will create an enormous level of reporting burden and complexity.
Most likely, it will create a big mess as it’s almost impossible for exchanges to know your cost basis unless you trade on that exchange exclusively or never transfer coins in or out of that exchange.
In other words, the 1099-Bs issued by exchanges will most likely be incorrect, and the burden will be on the taxpayer to prove otherwise. In addition, the definition of crypto brokers in the infrastructure bill is too broad, which will create a huge burden and negative impact on the crypto ecosystem.
If you receive a 1099-B from a crypto exchange you used and you know the gains/loss reported on the form are incorrect, you can solve it by:
1) seeking advice from a qualified crypto tax accountant;
2) using a crypto tax software such as CoinTracking to import all your crypto transactions and generate a correct tax report for your crypto gain/loss.
Infrastructure bill crypto Section 60501 explained
Section 60501 requires that people who receive more than $10,000 in cash and equivalents file a report with the IRS. Section 60501 would be an additional requirement for crypto traders, businesses, and investors in the US.
One problem right out of the gate is treating digital assets as “cash equivalent,” which contradicts the IRS determination that cryptocurrency is considered a property, not cash, for tax purposes.
Also, the new reporting requirement will put a severe burden on individuals, businesses, and exchanges that receive more than $10,000 worth of crypto. It will also invade people’s privacy as section 60501 requires the reporting of details, such as who paid the recipient, names, and social security numbers.
Any failure to report details about those sending payments is considered a felony offense. Let’s look at an example:
Just imagine that you are an NFT creator, and you are selling a lot of your NFTs for hundreds of thousands or even millions of dollars. The NFT platform you use (e.g., OpenSea) will be required to collect personal information such as name and social security number from each buyer who purchased more than $10K worth of NFT from you. That would most likely make people hesitate, if not unwilling, to buy your NFTs, wouldn’t it?
Need personalized help? Check our Full Service with a professional crypto CPA:
CoinTracking also offers a Full Service for crypto traders in the US. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.
Become 100% crypto tax compliant with CoinTracking: the best crypto tax software
CoinTracking covers all your crypto tax needs. Our crypto tax software makes it easy to import your trades, get your gains calculated, and generate the appropriate tax reports.
After importing all your crypto trades, CoinTracking automatically calculates your crypto capital gains and losses, while you can choose between 12 accounting methods (e.g., FIFO, HIFO, HMRC, ACB), depending on which country you are in.
Moreover, CoinTracking can generate ready-to-go tax reports for your country.
Do you have any crypto tax questions? Check the best guides:
Do you pay taxes when trading stablecoins?
How is Yield Farming Taxed?
DeFi Taxes: The Complete Guide.
How to save taxes with a Bitcoin IRA.
Do you pay taxes for receiving Bitcoin tips?
Uniswap Taxes Guide
How to calculate taxes with Bitcoin dollar-cost averaging?
FIFO for crypto taxes? Implications of accounting methods.
NFT Taxes: The Complete Guide.
2021’s NFT guide (with taxes).
Is Bitcoin taxable? The ultimate guide for 2021 taxes.
Do you pay taxes on Bitcoin debit cards purchases?
How to reduce your crypto taxes?
Crypto tax loss harvesting: Here’s what you need to know
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.