In the US, buying coffee with bitcoin is straightforward, but the resulting tax implications can be overwhelming. The Cato Institute, a libertarian think tank, argues that the tax burden is a significant deterrent to using bitcoin for real-world transactions. According to Nicholas Anthony, a research fellow at the institute, abolishing capital gains tax could simplify the process. "Using Bitcoin as money has never been easier, yet the tax code imposes a significant burden on law-abiding citizens," he wrote.
"Something as simple as buying coffee daily with Bitcoin can result in over 100 pages of tax filings." The issue arises because the tax system treats every bitcoin transaction as a sale of an asset, triggering capital gains calculations. This requires tracking when the bitcoin was acquired, its cost, and its value at the time of spending. The complexity increases if the bitcoin was accumulated in multiple batches, each with its own cost basis and purchase price. The potential for penalties or audits due to reporting errors adds to the headache.
Anthony suggests that Congress can address this issue by abolishing capital gains tax on bitcoin, exempting it from capital gains when used as a payment method, or introducing a "de minimis tax" with a threshold above which capital gains apply. He proposes linking this threshold to average household spending to better reflect real-world consumption.