- U.S. crypto users could be hit with a double taxation whammy if the new budget is approved
- The capital gains tax for $1m+ profits will raise to 39.6% under the new plans
- ‘Tax loss harvesting’ will also be prohibited, which the government hopes will raise $24 billion
U.S. crypto traders and investors could be hit with a double whammy of higher taxation and the closure of a key loophole, according to reports of President Joe Biden’s next budget. The budget proposes to nearly double the capital gains tax rate for some investors while closing the ‘tax loss harvesting’ loophole for everyone, which currently applies to other trading sectors but not cryptocurrencies. The changes are all part of President Biden’s aim to reduce the nation’s deficit by almost $3 trillion over the next decade.
Capital Gains Raise on Big Profits
The raise in capital gains tax, which would see it rise from 20% to 39.6%, will only apply to those booking profits of $1 million or more in a tax year, which means that most cryptocurrency traders and investors will not be affected. However, of a more pressing concern is the change to the tax loss harvesting process.
This process, which is outlawed in traditional finance, is when a holder of a share or security currently at a loss sells it on the last day of the financial year and buys it back the next morning. This is done so that the trader can offset the loss against their gains for the prior tax year without sacrificing their position. In the UK this is known as ‘bed and breakfasting’, but the U.S. calls it tax loss harvesting.
This process has not affected the crypto sector yet, but under the new budget it would, with the government hoping it will raise around $24 billion while reducing wash trading. Lawmakers considered such a change in the last Congress, but it didn’t become law. This may change in the upcoming budget, so U.S. crypto users had better get their portfolios in order.
Alternatively, crypto users could all move to Arizona, where the government is considering a bill to eliminate taxation on crypto profits.