In the United States, buying a cup of coffee with bitcoin is relatively straightforward, but it comes with a complimentary tax complexity. The bureaucratic burden of form-filling is sufficient to discourage users from utilizing the largest cryptocurrency for real-world transactions, according to the Cato Institute, a libertarian think tank that advocates for free markets and limited government. Abolishing capital gains tax could potentially alleviate this issue, the institute suggests. According to Nicholas Anthony, a research fellow at the institute's Center for Monetary and Financial Alternatives, 'Using Bitcoin as money has never been easier, yet the tax code imposes a significant burden on law-abiding citizens.
A simple daily purchase like a cup of coffee can result in over 100 pages of tax filings.' This is because the tax system treats bitcoin transactions as asset sales, triggering complex capital gains calculations. These calculations require determining the original acquisition time, cost, and spent value of the bitcoin, which can be complicated if the coins were accumulated in multiple batches. The risk of penalties or audits due to reporting mistakes further exacerbates the issue. To resolve this problem, Anthony proposes that Congress could abolish capital gains tax on bitcoin, exempt it from capital gains when used as a payment method, or introduce a 'de minimis tax' that only applies to transactions exceeding a certain threshold.
He cites the Virtual Currency Tax Fairness Act as a potential solution, suggesting that it could exempt personal crypto transactions from capital gains taxes if the gains do not exceed a certain threshold, such as $200, or a higher threshold linked to average household spending.