US Crypto Tax Law Study
Rebeca Moen Apr 30, 2023 11:08
Indiana and Maine universities publish a study examining US cryptocurrency tax law. The paper proposes a new tax framework for cryptocurrency losses, which would prevent taxpayers from using them against other capital gains.
Researchers from Indiana University and the University of Maine recently collaborated on a study that investigated the present condition of tax legislation in the United States regarding cryptocurrencies. The findings of the research are summarized in a series of recommendations that are directed for the Internal Revenue Service (IRS). If these suggestions were carried out, it would be impossible for taxpayers to deduct losses from bitcoin investments against profits from other types of investments.
The purpose of this study paper, which is named "Crypto Losses," is to shed light on the myriad of different types of losses that may be incurred by firms and people who have invested in cryptocurrencies. In addition to this, it suggests a new tax structure to be applied to such losses.
At this time, the IRS has not issued definitive instructions on cryptocurrencies; nonetheless, bitcoin losses normally adhere to the same taxes regulations as other types of capital assets. In most cases, they may be deducted against profits from the sale of a capital asset, but not against gains from other sources, such as income. However, there are some restrictions regarding the times and ways in which deductions can take place.
For example, the amount of a loss that may be deducted for bitcoin transactions that are classified as a "sale" or "exchange" will be limited. On the other hand, taxpayers are eligible to deduct the full amount of their losses if their cryptocurrency was lost, stolen, or destroyed in any other manner (such as by burning it or through some other destructive method).
According to the findings of the research, the existing tax system does not adequately account for bitcoin losses, and it suggests adopting a different strategy in order to solve this problem. The tax system that is being suggested would make a difference between losses that are incurred as a consequence of transactions and those that are the result of the irreversible loss of assets.
According to the framework that has been presented, the only way for taxpayers to deduct losses related to cryptocurrencies that emerge from transactions is to do so against other types of capital gains. On the other hand, losses incurred as a consequence of the irretrievable destruction of assets would be totally deductable against other types of income.
In general, the findings of the research underscore the need for more clarity in the regulations governing the taxation of cryptocurrencies, as well as a more nuanced approach to the problem of how to handle bitcoin losses. Because of the widespread use of cryptocurrencies, it is imperative that the Internal Revenue Service (IRS) remain current with the rapidly evolving world of digital assets and provide transparent direction to taxpayers about their respective tax responsibilities.
Image source: Shutterstock