In the US, purchasing a cup of coffee with bitcoin is relatively straightforward, but it comes with a complex tax burden. The Cato Institute, a think tank that advocates for free markets and limited government, argues that the tax code's treatment of bitcoin as a capital asset, rather than a currency, creates a significant obstacle for using it in real-world transactions.
According to Nicholas Anthony, a research fellow at the institute, the tax system's requirements are so burdensome that they can result in over 100 pages of tax filings for something as simple as buying coffee daily with bitcoin. This is because every bitcoin transaction is treated as a sale of an asset, triggering capital gains calculations that are not straightforward.
The calculations require determining when the bitcoin was originally acquired, its cost, and its value at the time of the transaction, as well as figuring out the difference and treating it as a taxable capital gain or loss. The complexity arises when the bitcoin used in the transaction was accumulated in multiple batches, each with its own cost basis and purchase price. The institute suggests that abolishing capital gains tax on bitcoin or exempting it from capital gains when used as a payment method could simplify the process. Another potential solution is to create a 'de minimis tax' that only applies to transactions exceeding a certain threshold.
The Virtual Currency Tax Fairness Act, which could exempt personal crypto transactions from capital gains taxes up to $200, is cited as a possible fix, although the institute argues that the threshold should be higher, around $80,000, to reflect real-world consumption.