Buying coffee with bitcoin is easy, the resulting tax burden is not
A libertarian think tank argues that treating bitcoin as a capital asset for tax purposes makes everyday payments impractical due to the complex reporting requirements.
What to know:
- The Cato Institute argues that U.S. tax rules make everyday bitcoin payments impractical because each transaction is treated as a taxable asset sale.
- Using bitcoin to buy routine items like a cup of coffee require tracking multiple crypto purchases, calculating cost basis and gains, and generating extensive tax filings, with the risk of penalties for errors.
- The report urges Congress to ease the burden by eliminating or limiting capital gains taxes on bitcoin payments.
“It’s never been easier to use Bitcoin as money,” Nicholas Anthony, a research fellow at the institute’s Center for Monetary and Financial Alternatives, wrote in a report. “Yet, at the same time, the tax code puts an incredible burden on law-abiding citizens. Something as simple as buying a cup of coffee every day with Bitcoin can result in over 100 pages of tax filings.”
That’s because the tax system doesn’t treat bitcoin as cash at the point of payment. Instead, every transaction is treated as if an asset has been sold just at that moment, triggering capital gains calculations. And the calculations aren’t straightforward.
That means figuring out when the bitcoin (or fraction of bitcoin) used in the transaction was originally acquired, how much it cost and the value at the moment it was spent. The difference is then treated as a taxable capital gain or loss.
