US President Joe Biden has once again caused an uproar in the crypto community with a new tweet. Biden shared an infographic on Twitter in which he called for closing “tax loopholes” that supposedly help wealthy crypto investors.
According to the infographic, the American government is missing out on $18 billion due to crypto-related tax loopholes. The tweet is also a battle cry from US Democrat Biden to Republicans, whom he accuses of wanting to waive food safety controls for the sake of protecting wealthy crypto investors.
Unsurprisingly, the tweet has been met with fierce opposition in the community. While some community members doubted the veracity of the figure, Scott Melker wrote that Biden should first return his campaign donations from FTX founder Sam Bankman-Fried before making any claims.
You took a $5,000,000 donation from SBF to support your campaign.
When are you planning to return that to FTX creditors?
It was, after all, money stolen from them.
Your friend and fellow citizen,
Scott Melker https://t.co/zf2QLgj19l
— The Wolf Of All Streets (@scottmelker) May 10, 2023
These Are The Crypto Tax Loopholes
Crypto portfolio tracking and tax software company Accointing has taken a look at the $18 billion figure Biden claims and what tax saving loophole he is referring to. According to the company, the strategy the US president is targeting is “tax loss harvesting” in combination with the wash-sale rule.
Tax loss harvesting is the most common approach to save taxes when trading. This involves selling underperforming cryptocurrencies at the end of the year to offset other realized gains during the year.
Another approach is to sell underperforming assets and use the loss to offset gains on other assets while investors trade, as the following example illustrates:
Let’s suppose you purchased 1 BTC for $7,000 in 2019 and you want to sell it today for $27,000. If you sell it, you’ll have a gain of $20,000, but if you can find a position that is $20,000 in the hole, you could also sell that position and your BTC gain becomes tax-free.
Biden’s claim, however, is probably mostly about the wash-sale rule. Unlike in the traditional financial market, cryptocurrencies do not have a “wash sale” rule that prevents investors from buying back the same asset within 30 days of selling it.
This means that crypto investors can offset tax losses at any time and repurchase the same asset on the same day with no legal consequences.
U.S. lawmakers have recognized that this “loophole” for crypto investors results in a significant loss of tax revenue. That’s why, the Biden administration’s 2024 budget includes a provision that would apply the wash-sale rule to cryptocurrencies as well.
What are the tax loopholes for crypto investors Biden is talking about and where does the figure $18B come from? 🤔
A thread 👇🧵
— Accointing by Glassnode (@accointing) May 10, 2023
And where do the $18 billion figure come from? The National Bureau of Economic Research estimates the U.S. Treasury’s loss of tax revenue in 2018 to be as much as $16.2 billion due to wash sales, and that’s likely where Biden’s $18 billion figure comes from, Accointing says.
At press time, the Bitcoin price was hovering below key resistance, changing hands for $
Featured image from iStock, chart from TradingView.com
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Jake Simmons has been a Bitcoin enthusiast since 2016. Ever since he heard about Bitcoin, he has been studying the topic every day and trying to share his knowledge with others. His goal is to contribute to Bitcoin’s financial revolution, which will replace the fiat money system. Besides BTC and crypto, Jake studied Business Informatics at a university. After graduation in 2017, he has been working in the blockchain and crypto sector. You can follow Jake on Twitter at @realJakeSimmons.