Last week, Democrats and Republicans put their differences aside to make it easier to cash in that virtual currency at your local store. How? By proposing a tax exemption where (the gain made through) the transaction is less than $200.
Hold on, we explain what that could mean for you (and your business) below.
The new legislation will make Bitcoin payments easier for everyone
In a rare turn of events, experts and politicians agree: the Virtual Currency Tax Fairness Act of 2020 will bring Bitcoin to the main street. Previously, any payment (no matter how small) in the currency was treated as “a sale of Bitcoin holdings”, explains Forbes.
That, plus the fact that it was subject to fluctuation, made it “a taxable event”. Anyone would laugh at the buck you made thanks to conversion rates (especially on things like your groceries), but money made is money made. And that was the law.
But this will soon be history, as the 2020 Act comes into force. Congressman David Schweikert (Arizona), who is behind the original bill, says that small virtual currency payments (which include Bitcoin) should not be treated as taxable income.
The purpose, or the reason behind the transaction, is no matter for the tax office either.
In an official statement, released last Thursday (16th January 2020), Schweikert went on to illustrate his point, using a cup of java as an example:
“This includes purchases as small as buying a cup of coffee because taxpayers are currently required to calculate and record any changes in the virtual currency’s value against the US dollar from the time they purchased the virtual currency until it was used in the transaction.”
Sound absurd? It was certainly a headache for anyone filing in their tax form.
Is cutting red tape enough? Is Bitcoin likely to shape the future of small transactions?
What does that mean to the average Joe? Well, it is very likely that we will soon see those “We Accept Bitcoin” stickers appear in local stores. Sure, it will take some time to catch on, but the main obstacle is now gone, at least when it comes to day to day transactions.
There are speculations that it could spark off new trading platforms, focused on convenience and smaller payments. If the general public takes a liking to cash in their Bitcoins at the local Starbucks and Walmart (or even that independent store, down the road), we can expect the healthy potential for growth.
There is also no denying that the US is also playing “catch up” with the rest of the world. The 2020 Act replaced an area of law, which was governed by the Internal Revenue Code of 1984. But it took until now to find a compromise (and perhaps most importantly, political will), despite similar exceptions in place for foreign currencies.
Needless to say, these have been around for more than decades.
In short, the legislators are hopeful that these changes will allow “people to use virtual currency in their daily lives”, boosting the value of the digital economy. Are these amendments going far enough? Only time will show. And we will all need to show a willingness to adapt (“got Bitcoin, anyone?”).