In the U.S., purchasing a cup of coffee with bitcoin is relatively straightforward, but it comes with a complimentary tax complexity. The administrative burden of completing forms is significant enough to discourage users from utilizing the largest cryptocurrency for real-world transactions, according to the Cato Institute.
The institute suggests that eliminating capital gains tax could alleviate this issue. Nicholas Anthony, a research fellow, noted that "using Bitcoin as money has never been easier, yet the tax code imposes a substantial burden on law-abiding citizens." He explained that buying a daily cup of coffee with Bitcoin can result in over 100 pages of tax filings due to the tax system's treatment of each transaction as an asset sale, triggering complex capital gains calculations. The calculation process involves 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 for reporting mistakes adds to the complexity. To address this issue, Anthony proposed that Congress could abolish capital gains tax on bitcoin, exempt it from capital gains when used for payments, or establish a "de minimis tax" with a threshold above which capital gains apply.
He cited the Virtual Currency Tax Fairness Act as a potential solution, suggesting that the $200 threshold for exempting personal crypto transactions from capital gains taxes is too low and should be adjusted to reflect average household spending.