The crypto market’s constantly shifting laws can easily baffle taxpayers. IRS’s latest regulations and the Senate’s last-minute addition to crypto regulation have been making things all the more difficult to comprehend.

With the IRS issuing new regulations and the Senate adding last-minute amendments to crypto legislation, the situation has grown a little more difficult.

So exactly is the new crypto tax rule and what does it mean for U.S. taxpayers, exchanges, and developers? Read this article to find out.

What Happened In The Senate?

On the 24th of August, 2021, the Upper House reached an agreement to adopt a $3.5 trillion budget resolution, schedule floor action on the bipartisan infrastructure agreement by September 27th, and move the voting rights legislation.

The accord comes after a group of moderate Democrats vowed to vote against the multibillion-dollar social safety net measure if it was passed before the bipartisan infrastructure plan.

And it does not end here. The agreement also bans any further modifications to the infrastructure package from being considered unless the House passes a new rule allowing them.

What Was The Issue Here?

Legislators are debating a $1 trillion bipartisan infrastructure bill that would broaden the definition of a “broker” to encompass any business that facilitates transfers of virtual currencies, such as Bitcoin, on behalf of another individual.

The problem here was with capital gains taxes. The new law required businesses to compute “cost basis”—the difference between sale revenues and initial purchase prices of certain assets (after accounting for fees or commissions)—on behalf of taxpayers, which is required for calculating tax liabilities. The objective is to eliminate guesswork—and the risk of fraud—in tax filing. 

What Does It Mean For The Crypto Community?

According to the new rule, financial institutions must begin providing more specific information on essential tax papers to the IRS and taxpayers (Form 1099-B).

This agreement is a crushing blow to the cryptocurrency industry, which has spent several weeks trying to remove wording from the infrastructure package that might impose onerous tax reporting obligations on crypto wallet developers and crypto miners.

What Do Crypto Experts Have To Say About The New Crypto Tax Rule?

Many cryptocurrency exchanges and other industry professionals claim that Congress has rushed through the rules without professional consultation. Thus making it a bit difficult for cryptocurrency foundation principles, decentralized exchanges, and taxpayers that do many cryptocurrency transactions.

The Bottom Line: What Can Be Expected?

Cryptocurrency is primarily regulated by the idea of anonymity. In reality, most crypto investors were lured to the crypto sector as an alternative to government-issued fiat currencies because of this.

Decentralized exchanges, which, unlike regular exchanges, rely on encryption and complicated computer mathematics, will be the first to feel the effects of the new crypto tax legislation. These exchanges are designed with the idea that no group of executives should have access to their information.

With the new tax regulations in place, these decentralized exchanges may fail to act in accordance with their principles.

FAQs: What Is The New Crypto Tax Rule?

  1. What are the new crypto tax rules?

On the 24th of August, 2021, the Upper House reached an agreement to adopt a $3.5 trillion budget resolution, schedule floor action on the bipartisan infrastructure agreement by September 27th, and move the voting rights legislation. The agreement also bans any further modifications to the infrastructure package from being considered unless the House passes a new rule allowing them. According to the new rule, financial institutions must begin providing more specific information on essential tax papers to the IRS and taxpayers (Form 1099-B).

  1. What will be the effect of the new crypto tax rule on developers and miners?

The new crypto tax rule is a crushing blow to the cryptocurrency industry, which has spent several weeks trying to remove wording from the infrastructure package that might impose onerous tax reporting obligations on crypto wallet developers and crypto miners.

  1. What will be the effect of the new crypto tax rule on exchanges?

Decentralized exchanges, which, unlike regular exchanges, rely on encryption and complicated computer mathematics, will be the first to feel the effects of the new crypto tax legislation. These exchanges are designed with the idea that no group of executives should have access to their information. Owing to the new tax regulations, these decentralized exchanges may fail to act in accordance with their principles.

  1. What is the objective of the new crypto tax law?

The objective of the new crypto tax law is to eliminate guesswork and to minimize the risk of fraud in tax filing and reporting.