Because from those total wages earned
Down to that net amount that’s due
I feel the painful sense of loss between the two
– After Taxes, Johnny Cash
In the crypto world, the Biden administration recently announced new crypto tax regimes, on links like this:
First, as context, crypto investors currently are limited to using crypto as capital gain taxes, which only allows $3,000 in taxes. Given the wild fluctuations, undoubtedly, many investors lose out. There are also some clean up of current regulations that are probably a good thing — such as exempting small transactions — which makes a lot of sense as currently, even purchasing a cup of coffee does require notifying Treasury.
At its core, Treasury is treating crypto like other assets, reporting cross-reporting requirements on foreign transactions and noting the liquidity in the markets and allowing certain transactions to have mark-to-market treatment where it is sufficient. This is all a very good thing. The people who will be hurt are people who are trading offshore and concealing gains from Treasury, which is a good thing. We all should pay our taxes!
However, there are still many use cases that will require significant clarification, like DeFi transactions and yield harvesting, and how various elements can net, and what to do with Gas Fees. In addition, it’s unclear who exactly is a custodian that requires reporting. For example, NFT custodians may at sometime look like a marketplace or intermediary with reporting requirements, buy may hold NFTs for use or verification, at which point the requirements make less sense. How the use of NFTs plays out will be an interesting clarification within the requirements.
For example, Concert creates NFTs of collections of assets/files which are stored on the blockchain. This could make Concert considered an NFT custodian, subjecting to some reporting requirements. However, Concert’s NFTs have significant utility and are not used for speculation or anticipated appreciation, so a reporting requirement does not make sense in our context, since our users do not sell or buy the NFTs which Concert mints — at least not yet and not in any volume. Our hope is that this distinction is noted by Treasury and and appropriate distinction is made. Frankly, we couldn’t even report if we wanted since there is no sales market for these sorts of NFTs.
Interestingly, other jurisdictions are also looking at crypto, invoking asset taxes (like in Indonesia) or crypto transaction taxes on exchanges. None of this is yet in discussion in the USA, but it will likely come. In addition, the enforcement for the crypto seems to be the same as elsewhere for other types of assets, however the self-custodied assets and wallets are still unclear, but likely to come under scrutiny as the regulations and tax requirement are subject to clarifications. However, given the non-domiciled elements of self-custodying, it will challenging to know what other countries will do as well, as many entities potentially will claim nexus and the ability to tax.
In all, the IRS estimates that it can raise $11B next year from crypto. This is a seeming start, but likely taxes will only go up and the regulations will only get more sophisticated as they suss out more and more use cases. Let’s hope for smart regulations that allow for effective Web3 use cases without killing compelling use cases. And at Concert, let’s hope for Concert. If anyone in Treasury reads this — drop us a line — we’re happy to explain how our NFTs work!