President Joe Biden intends to raise the long-term capital tax rate to 39.6%. That’s almost twice from 20% for people earning more than a million dollars. This tax increase will negatively affect crypto whales who have acquired large sums of unrealized gains.
Current Cryptocurrency Taxation Rules
Each time you dispose of capital assets such as stocks and Bitcoin, you will pay capital gains tax. This tax is applicable to any profits you make while exchanging cryptocurrencies or taking out Bitcoin Cash. Profits are calculated based on the difference between the sale price and the amount paid for the Bitcoin.
You may acquire short-term gains if you opt to sell the Bitcoins after retaining for 12 months or less. Marginal tax rates are applied to these types of tax gains, ranging between 10-37%.
If you hold on to your Bitcoin for over 12 months, you may seek long-term capital gains. Taxations rates vary from 0-15%. It can be taxed as high as 20%. This depends on your income level and filing status.
What does Biden propose?
People in the one million-plus income bracket will be affected by Biden’s increase in the long-term gains rate. The doubling of this tax rate seems hair-raising, it may not have a big impact as expected.
Approximately 153 million people filed their tax returns in 2018. From this figure, nearly 540,000 people reported an income of more than one million dollars. This represents around 1% of the US taxpaying population.
If Biden’s bill passes, this 1% segment will end up paying more taxes on their long-term gains. This portion might also include cryptocurrency holders. The group is sitting on a big amount of long-term gains that they want to cash out before Biden’s proposal is passed. Buyers can expect large amounts of selling by cryptocurrency holders before the new rules kick in.
The new policy will also increase the ordinary tax rate to 39.6%. For individuals who earn incomes in crypto-cash via staking, mining, or short gains and are earning over $500k per year, will notice a small jump in taxes.
Many details are still unclear, especially about the specifics related to the 1 million thresholds.