New Crypto Taxation Policy Starts in 2024

The regulatory agencies have been pushing for more oversight and control over the cryptocurrency industry for a while now. A big part of it is a tax policy that will take crypto into account and tax profits from it as any other capital gains.

A new policy is taking effect starting in 2024, and it's already causing a stir with crypto investors and any business or industry accepting crypto payments. At this point, it includes almost every industry since cryptocurrencies are more widely accepted.

What's The New Policy?

The United States Infrastructure Investment and Jobs Act added a provision to the tax code concerning cryptocurrency profits. The provision took effect on January 1st, 2024. The policy states that anyone who receives $10.000 or more in cryptocurrencies must report it as income to the IRS.

It's part of a growing effort made by the administration (and the previous one) to bring cryptocurrency into the fold regarding standard financial rules, regulations, and practices. This seems perfectly fine in itself, but things get complicated when it comes to the details.

How to File?

Crypto tax reporting obligations are much more difficult than it initially seems. For instance, when a person earns more than $10.000 from selling a car, they report their profits to the IRS, and the form requires them to add their name, address, and ID number to verify where the income has come from.

When a crypto miner receives a block reward for the same amount – it needs to be reported to the IRS in accordance with the new rules. However, whose name, address, and ID number should the miner state, as there's no other party involved? At this point, the IRS didn't qualify the matter at all.

Volatility Issue

Tax policy made for fiat currency may not work for cryptocurrencies due to their volatile value. The tax paid on profits of over $10.000 is straightforward enough when the payment itself is also made in USD. However, the value of cryptocurrencies changes based on market forces, and the value of the profit can dip below or go over $10.000 as time goes by.
IRS filing, tax payments, and refunds take time, and even though the value of cryptocurrencies goes up in the long run, it can change several times while each party fulfills its part in the filling process.

The policy states there's a 15-day window to report the profit to the IRS. Those who don't report their profits within that time are liable for fines. The value of the profit made in crypto can change within those 15 days.

The Changing Landscape

New tax regulations come amidst a changing landscape of crypto usage. Some industries, such as crypto gambling or online retail, have accepted digital currency payments for years. However, wider acceptance is relatively new. It shows that the general public has changed its views on crypto, and there are more users and more profit generated in cryptocurrencies.

Therefore, more regulation and a changing tax policy are a response to this fact. Even though the process of complying with the tax code will be rough for many investors due to how outdated the policy is – in general, it's a sign that crypto is now mainstream.

ETF Approval

The biggest change in how widely cryptocurrencies are used came just a few weeks ago. The US Securities and Exchange Commission (SEC) has approved the use of ETFs for Bitcoin. ETF stands for an exchange-traded fund (ETF), and it's a way for Bitcoin to be traded on the stock market without the investors having to buy coins or deal with crypto. Instead, they purchase and sell shares in a company based on the value of crypto.

It's a landmark change, allowing traditional financial institutions to participate in the cryptocurrency boom. The profits made this way are also taxed, as any other profit, but since they are not made in crypto, the provision we mentioned doesn't apply.

However, this, too, is a part of the exact landscape change – now, when crypto can be publicly traded, it will be adopted more broadly, and that's where the IRS comes in.

DeFi Transactions

Decentralized finance is one of the most important and useful financial products that came from using cryptocurrencies. When it comes to reporting the profits that are made from it, challenges are even more complex than the ones we mentioned, as the IRS isn't built for it.

There are over 60 million US citizens who own crypto assets. It's a sizable demographic, and the desire to tax their profits is perfectly ordinary. However, reporting those profits is impossible at this time, according to the rules that took effect on January 1st, 2024. There are already concerns coming from those who worry that they may face repercussions for not being able to comply and report their profits.

A De Minimis Exemption

Some claim that the best way to approach taxing DeFi transactions is to introduce what's known as A De Minimis exemption. This exemption is already used for many traditional transactions, including the profits from trading in foreign currencies.

Simply stated, a de minimis is an exemption that allows certain transactions to remain untaxed as they are too small in scope and amount to justify involving the taxation authorities. The policy question remains: what transaction is too small to report?

How Things are done in the UK?

Cryptocurrency experts often claim that US policy should be modeled on that of the UK. Cryptocurrencies are widely used in the UK, and several administrations have adopted a business-friendly policy towards them. The population is tech-savvy. Based on these principles, the government started taxing crypto profits, but it found a measured approach.

In 2023, the UK issued a call to industry insiders and experts to suggest policy options for taxing DeFi transactions. That way, the industry's novelty and the need to regulate it are considered. Such a call from the IRS could lead to finding a better solution than the one set by the new policy.

Will The Tax Policy Affect Adoption?

The main concern for the industry is how the new tax policy will affect adoption. If the policy is too restrictive or difficult to comply with, some users may give up on cryptocurrencies altogether.

There are many advantages that come with using cryptocurrencies, and there's a lot of goodwill towards increased adoption. Chances are that the widening of the user pool will continue in the years to come, regardless of the IRS policy, but it is an additional concern for the user.

Conclusion

As a part of broader changes in financial policy, 2024 brought in a new tax policy when it comes to reporting the income made in cryptocurrencies. The policy states that starting in 2024, an income of $10.000 or more needs to be reported. This has caused difficulties for some users, as the IRS isn't suited to relatively new financial products such as crypto mining.
The value of crypto is often volatile, so it remains to be seen when a taxpayer has passed the set limit. With the broader adoption of crypto, taxation is expected to become more rigorous, but the policy still needs to adapt to the realities of cryptocurrencies.