Amid a great deal of uncertainty in 2020 due to the ongoing coronavirus pandemic, we find ourselves once again navigating uncertain waters as it relates to tax planning for tax year 2021.
We often see headlines announcing that well-known businesses and corporations are moving towards allowing payment through virtual currency. This might be fun and exciting to us, our friends, and/or clients who own virtual currency. However, many holders of virtual currency do not realize that every time they “spend” their Bitcoin, etc. on a cup of coffee or other goods & services, a taxable transaction has occurred that needs to be reported on their tax return! For owners of highly-appreciated cryptocurrency, this could cause an unintended tax bill (and a need to pay in estimated taxes throughout the year).
As evidenced in the Infrastructure bill that cleared the Senate this week and as discussed below, there will continue to be a big push to regulate cryptocurrency tax reporting in the coming year. It is imperative that good records are kept to track all activity (proceeds and basis).
Legislation Update: Wednesday, August 11, 2021
There has been some legislative movement in Congress this past week:
- Senate passed a $1 trillion infrastructure bill, which contained only a few tax provisions that largely don’t affect most taxpayers. The bill has an uncertain fate in the House, with more details to come as the House takes up the bill.
- Budget legislation ($3.5 trillion) is taking shape in the Senate that could include many corporate & individual tax hikes, elimination of basis step-up (at death and for lifetime gifts), and some possible relief on the $10,000 state & local tax limit for itemized deductions. This “human infrastructure” legislation focuses on healthcare, education, and tax reform (among many other items).
More details will be communicated as we know more. For now, if you are in need of tax, gift and estate planning as we near year-end, or have any questions about the recent legislation, please reach out to your trusted advisor at Central Trust Company, or contact us today to set up an appointment.