REAL CLEAR CRYPTO: New Crypto Taxes in 2025


By Sarson Funds, Inc.

In the ever-evolving landscape of cryptocurrency, the Biden administration’s budget proposal for 2025 has sparked significant interest and debate. With a keen focus on tax reforms targeting the digital asset industry, these proposals aim to close loopholes, increase tax fairness, and ensure all investors play by the same rules. From a crypto mining excise tax to the implementation of wash sale rules for digital assets, the proposed changes are set to reshape the way cryptocurrencies are taxed in the United States. In this blog post, we will delve into the details of these proposals, exploring their potential impact on the industry and the arguments surrounding their implementation.

Crypto Mining Excise Tax

Understanding the Proposal

The Biden administration’s budget proposal includes the introduction of a crypto mining excise tax, aimed at ensuring that firms engaged in crypto mining activities contribute their fair share to the country’s tax revenue. The tax would be based on the costs of electricity used, starting at 10% in the first year and gradually increasing to 30% in the third year. By implementing this tax, the government estimates generating nearly $10 billion in 2025 and over $42 billion over the next decade. Proponents argue that this tax would not only increase revenue but also address environmental concerns by incentivizing miners to adopt more sustainable practices. Critics of the crypto mining excise tax raise concerns about its potential negative impact on the mining industry in the U.S. They argue that the proposed tax burden, particularly the 30% rate in the third year, could make mining operations less profitable and discourage investment. This, in turn, may lead to a decline in mining activities within the country and push them offshore to jurisdictions with more favorable tax policies.

Wash Sale Rule for Digital Assets

In the realm of cryptocurrency taxation, the proposed wash sale rule for digital assets stands out as a pivotal reform under the Biden administration’s budget plan. This rule aims to eliminate the tax subsidy enjoyed by crypto holders who strategically sell assets at a loss to reduce their tax burden, only to repurchase them shortly afterward. By disallowing losses from such transactions, the government seeks to ensure that investors pay taxes on their actual gains, promoting fairer tax practices in the digital asset space. Proponents argue that closing this loophole would enhance tax fairness and generate additional revenue for the government.

Opponents of the wash sale rule, however, raise concerns about potential complexities and market implications. They argue that the unique nature of digital assets, coupled with rapid price fluctuations, could make it challenging to identify wash sales accurately. Additionally, critics fear that the rule might discourage trading activities and hinder market liquidity. Despite these reservations, the proposed wash sale rule represents a significant step towards leveling the playing field in cryptocurrency taxation and promoting transparency in the industry.

Information Reporting Requirements and Foreign Crypto Account Reporting Rules

In the realm of cryptocurrency taxation, transparency and compliance are paramount. The Biden administration’s budget proposal introduces stringent information reporting requirements for financial institutions and digital asset brokers. By mandating these entities to disclose transaction details, the government aims to bolster oversight and combat tax evasion within the crypto industry.

  1. Enhanced transparency:The proposed reporting obligations seek to shed light on the intricate web of cryptocurrency transactions. By requiring detailed information from financial institutions and brokers, the IRS can better monitor and regulate the flow of digital assets, ensuring that all taxable events are accurately recorded.
  2. Foreign crypto account reporting rules:Additionally, the budget includes provisions for U.S. taxpayers to report holdings in foreign crypto accounts. This measure serves as a preemptive strike against tax evasion through offshore accounts, aligning with the administration’s efforts to strengthen international tax compliance.

While proponents argue that these reporting requirements are essential for effective tax enforcement, critics raise concerns about potential privacy infringements and administrative burdens. The balancing act between transparency and individual rights is a delicate one, highlighting the nuanced challenges of regulating a rapidly evolving industry like cryptocurrency. As the debate unfolds, the ultimate goal remains clear: to create a fair and transparent tax framework that upholds the integrity of the financial system.

Mark-to-Market Rules for Crypto

The final proposal under Biden’s budget plan is the introduction of mark-to-market rules for cryptocurrencies. This means that investors would be required to pay taxes on the unrealized gains of their digital assets each year, regardless of whether they have sold or exchanged them. This would bring crypto taxation more in line with traditional investments like stocks and bonds, where taxes are due on any increase in value.

In Conclusion

In conclusion, Biden’s budget and tax proposals concerning cryptocurrencies are poised to bring significant changes to the digital asset industry. The introduction of a crypto mining excise tax, wash sale rules for digital assets, information reporting requirements, and mark-to-market rules are all designed to increase tax fairness and close loopholes in the system. While these proposals may face pushback from some in the industry, they represent a step towards a more regulated and transparent crypto market. It is crucial for investors to stay informed and adapt to these potential changes to ensure compliance and continued success in the evolving world of cryptocurrency taxation, this article is not intended to be Tax or Financial advice.  Consult with your Tax Attorney before making any decisions related to taxation.

Disclaimer: This content does not constitute investment advice. All investments involve inherent risks. The author, Sarson Funds, Inc., and its affiliated managers may have holdings in all projects discussed. It is recommended to consult with a financial advisor prior to making any investment decisions, or alternatively, advisors can reach out to Sarson Funds directly at [email protected].