2023 might be a significant year for crypto and taxes. The past few years have seen rapid growth in the acceptance and value of cryptocurrencies. Bitcoin, Ethereum, and other digital assets have all seen massive gains in value, leading to a surge in popularity.
As the cryptocurrency industry grows, governments are starting to take notice and explore ways to tax it. Taxing cryptocurrencies have been around for a while, but it has only recently begun to gain traction.
Several countries, such as the United States, have already begun to impose taxes on cryptocurrency transactions. However, these taxes are limited in scope and only apply to specific transactions, such as those related to capital gains.
Last year, the Department of Treasury published its tax policy proposal, known as the “Green Book.” This proposal included a section specifically devoted to BTC and cryptocurrency brokers and how digital assets should be taxed.
In summary, the Treasury’s proposal will “demand that certain financial establishments disclose their account balance (comprising the cash value or the potential profits from their annuity contract, or insurance contract) for every financial account managed at a United States office and owned by foreign persons.”
Due to the Foreign Account Tax Compliance Act (FATCA), the US can monitor potential illegal financial activities by US citizens. If this proposal is approved, US regulators can get details on US-held resources and exchange financial data on foreign accounts with other nations.
However, there’s been no indication of implementing the proposed changes as the Treasury has remained silent.
How Could The Big Nations Do It?
Cryptocurrency regulation is nothing new. The explosive growth and popularity of the crypto sector have necessitated an increase in its oversight. This week, Italy passed a law requiring cryptocurrency traders to pay capital gains taxes similar to those imposed in the United States.
This law is in line with the trend of increasing regulation on emerging markets, prompting a response from the US government. The announcement of direct taxation of BTC may cause a dip in the crypto market.
However, such regulation goes against the principle of decentralization that underlies crypto. Nevertheless, the taxation of cryptocurrencies may result in a range of benefits. For one, it could lead to more clarity and certainty in the market, a massive attraction for institutional investors.
Governments could also use taxes to fund critical social programs and initiatives. Finally, it could also help legitimize crypto use further, as governments would view them as a legitimate asset class.
Though nothing is certain, 2023 could be a big year for crypto taxation. Governments are starting to take notice of the potential of digital currencies and are looking to create regulations that treat them more like traditional currencies. This action could open up the possibility of governments using crypto taxes to fund beneficial social initiatives.