Those who want to make daily purchases with Bitcoin in the USA face a serious tax burden. In particular, the latest report published by the Cato Institute showed that one of the biggest obstacles to the adoption of the largest cryptocurrency as a means of payment is tax legislation. For example, even buying a cup of coffee requires users to prepare a comprehensive tax return.
Tax confusion when paying with Bitcoin
The US tax system treats Bitcoin as an asset at checkout, not like cash. This means that each transaction is taxed like the sale of an investment. Therefore, any bitcoin spending creates the necessity of calculating the relevant gain or loss. The person making the transaction needs to determine when and at what price he bought his crypto and the difference between its value at the time of the transaction. Thus, capital gain or loss may arise from the difference.
The Cato Institute is known as a well-established research center focusing on market economics and individual freedom. Nicholas Anthony, an expert at the organization’s Center for Monetary Policy Alternatives, drew attention to the complexity of the system in his report. In his assessment, such a practice makes it very difficult to integrate Bitcoin into daily life.
“Using Bitcoin as money has never been easier. However, the current tax code places a huge burden on compliant citizens. For example, a simple transaction such as buying coffee every day can mean hundreds of pages of tax returns,” the report stated.
Tax challenges are further complicated by the fact that Bitcoin is bought and sold in several different tranches. Even the BTCs you pay for coffee may be collected at different prices over time. All these different transactions have to be documented one by one and reported in detail.
Criminal risks on users and search for solutions
The risk of making mistakes in tax reporting also leads to criminal sanctions and audit concerns for users. This makes it difficult for Bitcoin to become practically widespread in daily life. Experts argue that this system should be changed with the intervention of Congress.
Nicholas Anthony shared his opinion: “Taking steps to reduce the government’s influence on the market and allow competition to determine the best currency could be a solution.”
One of the proposals on the agenda is to provide capital gains tax exemption for Bitcoin spending. However, it is reported that an additional bureaucracy may arise here, such as proving that the expenses are actually for the purchase of goods or services. Alternatively, under the title of “de minimis tax”, it is proposed to collect tax only on transactions above a certain amount.
Nicholas Anthony also touched upon one of the current legislative proposals, the “Virtual Currency Tax Fairness Act”. This law envisages exempting personal crypto transactions from capital gains tax under the $200 threshold. However, Anthony stated that this limit was unrealistic and suggested that the average household expenditure be taken into account and the limit be increased to 80 thousand dollars.
Current legislative proposals and possible impacts
Initiatives such as the Virtual Currency Tax Fairness Act aim to pave the way for the active use of cryptocurrencies, especially Bitcoin, in the real economy in the USA. However, the low limit does not include most transactions currently made with crypto. If such regulations were implemented, the use of crypto in daily payments could increase significantly and the tax reporting burden could decrease significantly.
As a result, even the smallest purchase made with bitcoin in the USA imposes a significant paperwork burden and possible sanctions on the user due to current tax provisions. Experts on the subject state that there are serious obstacles to the widespread use of cryptocurrencies in daily payments without the establishment of a simpler and more competitive system.
