A proposed tax cut by U.S. President Donald Trump could be a big win — or a relatively insignificant win — for the crypto industry if it is passed.
In a news conference at the White House earlier this week, President Trump said that his administration was “very seriously” considering a capital gains tax cut.
“We’re looking at also considering a capital gains tax cut, which would create a lot more jobs.”
There is a debate over the extent of President Trump’s ability to deliver tax cuts. The long term capital gains rate of 20% is primarily governed by Congress, so to deliver a big cut he’d need to get lawmakers on side via negotiation.
Alternatively, an executive order could be used to cut tax bills in a move known as indexing capital gains to inflation. That is where the original purchase price of an asset is adjusted when it is sold, so that no tax is paid on appreciation tied to inflation, according to Bloomberg. This would be of much less benefit to traders, as crypto profits can make CPI look insignificant.
Current state of U.S. crypto tax
Taxation in the U.S. is a minefield. Americans are required to report gains and losses on each cryptocurrency transaction, or when they earn cryptocurrency via staking, whether or not they have made a profit.
The Internal Revenue Service, or IRS, identifies cryptocurrency as property, not currency, which is why it must be reported. Failure to report income from the sale of digital assets could result in penalties and interest on unpaid taxes.
The IRS also states that wages paid to employees using cryptocurrencies are subject to federal income tax withholding and payroll taxes.
As reported by Cointelegraph earlier this month, the IRS is getting much smarter at tracking crypto taxes. As staking rewards gather momentum, tax authorities in the U.S. are keeping up with the game.
The impending introduction of staking on Ethereum 2 will be a capital gains nightmare for stakers as recipients need to record the amount, and current price, of rewards each time they are distributed.
If Donald Trump manages to push through his proposed capital gains tax cut, it will at least offer the opportunity to keep at least a little more of the gains after all the recording keeping and paperwork has been completed.