Bakkt is due to launch in 2019, after which, as we reported Thursday, Starbucks could start accepting Bitcoin for in-store purchases. The ‘coffee-shop’ analogy has been a key stick with which the anti-crypto brigade has been beating it for many years. The argument goes that if you can’t buy something like a coffee as quickly and easily with crypto as with traditional fiat currency then it serves no purpose. The Bakkt/Starbucks hookup could put paid to this argument, but it will bring with it another beating stick – tax.
A Taxing Situation
Tax is something that hasn’t always gone hand in hand with cryptocurrency. This is not surprising given its large section of strongly libertarian devotees who object to tax on a moral level, as well as those who have simply used crypto as a way to avoid paying it. Reporting crypto earnings is a notoriously difficult process, and opening up Bitcoin to daily microtransactions is, in the eyes of some, going to lead to a whole new world of problems.
Reminder that if Starbucks does accept bitcoin at some point, you will be required to calculate capital gains on every cup of coffee you buy https://t.co/nMZLGJTfc4 We are trying to change that
— Neeraj K. Agrawal (@NeerajKA) March 5, 2019
Neeraj K. Agrawal of cryptocurrency policy thinktank CoinCenter reinforced this idea with a tweet shortly after the news broke, reminding Bitcoin holders that, as things stand, they will have to pay capital gains tax on any Bitcoin they spend to buy their coffee and croissant. What this means in practice is that you will have to record every Bitcoin purchase you make, including what price Bitcoin was when you bought it and what price it was when you bought the goods with it, work out the difference and then add that to your capital gains tax declaration. On its own this shouldn’t lead to a tax bill, given that most countries allow a certain amount of capital gains to be tax free and only the most hardened coffee addict would cross it. It doesn’t take away the pain and the impracticality of having to keep the records in the first place however – who wants to go through the hassle of that just to buy coffee with Bitcoin?
A Glimmer of Hope for Bitcoin Tax
There is hope, however. Firstly, there are apps that can help you out come tax time or automated spreadsheets you could put together which would work everything out for you, although you still have to add the basic details. Automated tax calculations may be developed down the road, but for ultimate ease of use these would need to be embedded within Bitcoin payment processors, of which there is no guarantee. There is another potential solution for U.S. customers however, but it is a much longer shot – changing the law. Agrawal’s thinktank are actively pursing a change in legislation by proposing a small gains exemption which would ignore gains on individual purchases that come under a certain threshold, on top of the existing allowance of $3,000. This would mean that each transaction under the threshold would be ignored, unless of course the total tips you over the annual threshold – which comes out to about 820 Caffe Lattes per year, so not that likely. According to Agrawal, the proposal garnered a “positive reception” in Congress, but that was back in 2017, so until we get an update we’d better start sharpening our Excel skills.