6 Biden Proposed Tax Changes That Could Hurt Crypto Traders

Tax season has come and gone, so why are crypto traders still talking crypto taxes?

It’s no secret that the IRS is aggressively trying to collect significant tax gains from crypto investors.

Recently, the Biden administration has made a staggering number of tax proposals that could affect crypto traders, only adding to the complexity of tax planning for U.S. crypto owners.

These proposed tax changes could potentially jeopardize the opportunity for traders to secure their crypto gains.

Why Are Biden’s Proposed Changes Threatening To Crypto Traders?

The Biden administration has proposed a hefty 39% increase in the 2022 government budget.

The administration also proposes substantial tax increases, threatening crypto traders hoping to keep their profits. 

6 Significant Biden Tax Changes Affecting Crypto Traders

For all crypto traders who want to keep more of your gains for yourself, be aware of these six tax changes proposed by the Biden administration: 

1. Increase top tax rate from 37% to 39.6% for incomes over $452,700 (single). This is the new tax rate for your short-term capital gains if you are in this tax bracket.
2. The long-term capital gains tax rate when total income exceeds $1 million is 39.6%. Add to this the Net Investment Income Tax of 3.6% for a total of 43.2% before adding state income tax. If the law is passed, the strategy will keep long-term gains under $1 million total income. 
3. The Senate proposal would see tax changes implemented retrospectively, possibly starting from the beginning of this year. This would be done to prevent investors from hiding future tax obligations.
4. Two significant proposals that are likely to pass are changes to how financial exchanges and crypto exchanges disclose information to the IRS. One proposal seeks to require changing the 1099-INT form by requiring financial institutions (including crypto exchanges) to report every registered account’s total inflows and outflows. Since inflows are generally classified as either taxable income or non-taxable transfers, this new proposal will be a powerful tool for auditors to a taxpayer’s overall income.
5. The second reporting change is Form 1099-K. The proposal is to aggregate annual investing costs and proceeds. These changes to the 1099-K form will make it easier for the IRS to determine who to audit.
6. The administration has proposed reducing the unified gift/inheritance exclusion from $11.7 million to $3.5 million. This exclusion is the amount a taxpayer can exclude from gifts before the 40% death tax is applied, whether alive or dead. If you could take advantage of this reduction, an investor could gift $8.2 million and avoid the $3.2 million in taxes that would occur if given under the lower exclusion.

Crypto Tax Tip: Continue to educate yourself on the Biden administration’s proposed tax changes, and consider taking your gains in 2021 instead of waiting until 2022.