President Biden’s budget proposal includes a plan to raise the capital gains tax to 44.6%, setting a historic high.

• Biden proposes raising long-term capital gains tax to 37% for taxpayers above $1 million income.
• Additional proposal aims for a top marginal rate of 44.6% on long-term capital gains.
• The move aims to level the playing field between high ordinary and investment income earners.
• IRS introduces new tax form, 1099-DA, to simplify crypto transaction reporting.

President Biden has proposed a significant increase in the capital gains tax, reaching 44.6%, which would represent the highest formal federal capital tax in history. This proposal, part of Biden’s budget proposal for the 2025 fiscal year, aims to address income disparities and generate revenue.

Impact on Taxpayers

Under the proposed plan, the long-term capital gains tax rate would rise to 37% for taxpayers with incomes exceeding $1 million. Additionally, a separate proposal would further increase the net investment income tax rate by 1.2 percentage points for individuals earning over $400,000. The combination of these proposals would result in a top marginal rate of 44.6% on long-term capital gains and qualified dividends.

Policy Implications

The proposed increase in the capital gains tax rate seeks to create parity between high ordinary income and investment income earners. By implementing higher tax rates on capital gains, the administration aims to address income inequality and ensure fairness in the tax system.

The proposed tax hike may prompt businesses and individuals affected by the increase to explore alternative investment options, such as digital assets. The evolving landscape of crypto taxation offers potential avenues for economic freedom, especially considering the comparatively lower tax rates currently applicable to cryptocurrencies.

IRS Introduces Simplified Crypto Tax Reporting

In a related development, the U.S. Internal Revenue Service (IRS) recently unveiled a new tax form, 1099-DA, designed to streamline the reporting of crypto transactions. This form aims to simplify tax liabilities associated with crypto transactions by providing sections to record taxable gains or losses, token codes, wallet addresses, and other transaction details. The introduction of this form may ease the tax reporting process for investors, with some tax experts offering guidance on its completion.