From NFT US state sales taxes to a brand new IRS 1099 form for crypto assets, there's a lot going on in the world of crypto regulation. We’ve got this covered and more in our Koinly crypto news roundup. Let’s dive in.
The IRS is creating a new crypto tax form
Bloomberg reports that the Treasury and the IRS are working on a new form for crypto firms to use for tax reporting - the 1099-DA.
The new form comes as a result of the American infrastructure bill and backlash from the crypto industry. The bill stated crypto exchanges would be required to report customer's gains and losses using the existing 1099 forms, despite the fact that the currently used 1099-B and 1099-K forms aren't designed for crypto assets and can often cause more problems than they solve.
The draft is due in the coming months. No one yet knows what the 1099-DA form will look like, but it's hoped that the form may remove the requirement to report cost basis - the current downfall of 1099-B forms for the crypto industry.
Washington and Pennsylvania introduces NFT sales tax
Forbes reports that Washington becomes the first state to introduce an NFT sales tax.
The Washington State Department of Revenue published detailed guidance on the sales tax consequences of NFT sales - the first of its kind in the US. The guidance is detailed, but in brief:
- Sales tax would apply to stand-alone digital products and NFTs - like artwork, an autograph or video clips.
- Sales tax would also apply if the object of the purchase is a standalone good or service, not the NFT itself - for example if the NFT gave access to a concert.
- Retailing business and occupation tax (B&O tax) may also apply.
Pennsylvania has also added NFTs to the list of properties subject to the State's sales and use tax provisions. Many states may follow suit.
US Senate bill aims to class Bitcoin & Ether as commodities
A new Senate bill dubbed the Digital Commodities Consumer Protection Act seeks to classify Bitcoin and Ether as commodities. The bill doesn't mention other coins or tokens.
If the bill passes, the Commodity Futures Trading Commission (CFTC) would become the regulatory body overseeing Bitcoin, Ether and potentially other or all cryptocurrencies.
It would remove some aspects of governance over the crypto industry from the Securities and Exchange Commission (SEC).
The next step for the bill will be assigning it to another committee and going through the markup process.
Spending crypto under $50 might be tax free soon
Another bill aims to cut taxes for US crypto investors by excluding small crypto payments from the Capital Gains Tax rules.
The bill - titled the Virtual Currency Tax Fairness Act - seeks to exclude crypto transactions under $50 from Capital Gains Tax requirements - making spending crypto under the value of $50 tax free.
The bipartisan bill also includes a provision to increase the $50 benchmark alongside inflation.
IRS amends crypto tax return question
The IRS has modified the crypto question on form 1040 - the individual tax return form.
In the draft for next year's form 1040, the question now reads, "At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
Last year, the question read, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
The expansion of the question may hint that the IRS will be focused on crypto rewards, awards, compensation or other income next tax season.
What does it mean for your crypto taxes in America?
For the most part - not much just yet! The two bills in question are unlikely to see any progression by the end of this year, while the draft 1040 form and 1099-DA may change before the next tax deadline.
However, if you’re selling or purchasing NFTs in Washington State or Pennsylvania - you should read the updated guidance from your state and see how your transactions are impacted.