In the U.S., purchasing a cup of coffee with bitcoin is relatively straightforward, but it comes with a significant tax burden. The administrative burden of filing taxes is so substantial that it deters users from utilizing the largest cryptocurrency for real-world transactions, according to the Cato Institute. The institute suggests that abolishing 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 considerable burden on law-abiding citizens. 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 every transaction as an asset sale, triggering complex capital gains calculations.
The calculations require determining the original acquisition time, cost, and value of the bitcoin used in the transaction, which can be complicated if the bitcoin was accumulated in multiple batches. The risk of penalty or audit for mistakes in reporting adds to the complexity. To address this issue, Anthony proposes that Congress consider abolishing capital gains tax on bitcoin, exempting it from capital gains when used as a payment method, or creating a 'de minimis tax' with a threshold above which capital gains apply. He also suggests that the Virtual Currency Tax Fairness Act could be a potential solution, although he recommends increasing the proposed $200 threshold to better reflect real-world consumption.