A new bill was proposed in mid-January this year called The Virtual Currency Tax Fairness Act of 2020 by bipartisan members of congress. The bill will essentially exempt transactions below $200 from capital gains tax allowing for smaller day to day transactions in bitcoin and other cryptocurrencies.
The bill which was introduced by U.S. House Representatives DelBene, Schweikert, Soto, and Emmer states:
“Gross income of an individual shall not include gain, by reason of changes in exchange rates, from the disposition of virtual currency in a personal transaction (as such term is defined in section 988(e)). The preceding sentence shall not apply if the gain which would otherwise be recognized on the transaction exceeds $200.”
Crypto advocacy group Coincenter worked closely with Congresswoman Suzan Delbene of Washington and Congressman David Schweikert of Arizona to introduce the bill, which proposes to amend the 1986 Internal Revenue Code to exempt from capital gains taxes when used to make personal purchases.
Why does this matter?
Currently in the US, Bitcoin is classified as a commodity by some agencies which means that for every transaction capital gains are calculated and taxes have to be paid accordingly. For every purchase of a good, the sale of Bitcoin is considered a taxable event which is a real hassle for anyone who wants to use Bitcoin for any kind of purchase.
When we consider lightning payments which may be in very small amounts in the case of microtransactions, this problem only gets amplified. But if this new bill is passed then it is especially good for the adoption of lightning network since users can directly be onboarded into the experience of using bitcoin without having to worry about taxation.
Most people try to avoid events of taxation which means they will be incentivized to transact under $200 (which is the threshold limit for taxation), lightning network even though not widely adopted yet is very well positioned to do transactions for smaller amounts given factors like speed, lower fees, etc. (Check out our lightning wallet to get a taste of it!)
When you view Bitcoin usage from an Ideologically lens, regulations should not matter and make no sense given that the protocol itself is not confined to any country. It is a decentralized protocol with an aim to serve as an alternative to government-issued currencies that are inflated away into oblivion.
But from the perspective of practical usage, it is important that the government regulations do not make it inconvenient for everyday users to transact with Bitcoin. The regulations might not completely kill Bitcoin but it can set a huge roadblock for wider adoption as most people do not wish to break rules or avoid taxes just to use Bitcoin.