Sen. Cynthia Lummis recently introduced the Lummis Crypto Tax Bill. This legislation would start to establish a clear and uniform legal framework for taxing these emergent digital assets. The bill sets a $300 de minimis tax exemption as the threshold for most digital asset transactions. This amendment will help crypto users use their tokens on everyday purchases without the burden of calculating and paying capital gains tax on every use. This change would be a huge step toward making crypto transactions much easier and fostering wider adoption.
The legislation as proposed would introduce an annual limit on the exemption at $5,000 as well. This cap should exempt purchases of cash or cash equivalents, including stablecoins. Additionally, it carves out property that is used in the course of an active business or held to produce income. The bill goes a long way towards tackling the most important aspects of crypto taxation, bringing welcomed relief and clarity to individuals and businesses alike.
Key Provisions of the Lummis Crypto Tax Bill
The Lummis Crypto Tax Bill includes more than a dozen provisions aimed at clarifying and simplifying the taxation of digital assets. The bill would codify a mark-to-market election. This makes it cost effective for businesses to have unrealized crypto gains as a line item on their balance sheets.
The bill clarifies that rewards received from crypto mining or staking will not trigger a taxable event until they are sold. This income is subject to taxation as ordinary income. Under the new rule, capital gains reporting requirements would not apply to crypto transactions of less than $300.
We agree with Senator Lummis on the need to adapt the tax code to the realities of a digital economy.
"In order to maintain our competitive edge, we must change our tax code to embrace our digital economy, not burden digital asset users." - Sen. Cynthia Lummis
Impact on Crypto Users and Businesses
The proposed tax exemptions and clarifications as to existing law would be a big win for crypto users and businesses. Raising the $300 de minimis exemption will make it easier to undertake everyday transactions. It would enable people to use crypto for everyday purchases without the burden of having to report capital gains on de minimis amounts. The $5,000 annual limit strikes a good balance by keeping a lid on costs but providing significant relief.
For nonfinancial businesses, the mark-to-market election would offer a more straightforward, less complex method for reporting crypto holdings on their balance sheets. Providing clear guidance on the taxation of crypto mining activities and staking rewards will provide much needed clarity. Such support is vital for all Americans involved in this work.
"We cannot allow our archaic tax policies to stifle American innovation, and my legislation ensures Americans can participate in the digital economy without inadvertent tax violations." - Sen. Cynthia Lummis
Future Steps and Implications
Senator Lummis had already aggressively lobbied to insert crypto tax perks into Congress’ massive, anti-deficit reconciliation bill. This new bill is not the Green New Dealers’ retribution sequel, but rather a standalone effort to tackle these issues. When, specifically, the legislation will be introduced on the Senate floor has not been decided.
The bill would eliminate the paperwork burden currently imposed on making charitable donations in crypto. This would encourage additional crypto donations to non-profits. If passed, the Lummis Crypto Tax Bill would be a total game changer. It would go a long way towards normalizing digital assets into the day-to-day economy.
