Paying for Coffee With Bitcoin Could Lead to Tax Headaches

 Being able to pay for coffee or any other good and service with  crypto is what a lot of users are looking forward to. According to a  report by The Block, coffee  giant Starbucks has received equity in Bakkt, and will in return  install software on its stores this year to allow patrons to pay using  the flagship cryptocurrency, BTC. For cryptocurrency users, the move may  turn into a tax-related nightmare.Currently, the US sees  cryptocurrencies as property, and every transaction has to be logged,  whether it’s a large or a small one. This means that every time users  buy coffee with BTC, they’ll have to record the transaction for tax  purposes.Needless to say, every transaction triggering a “taxable  event” will lead to, as senior research fellow at the nonprofit  research and advocacy group Coin Center James Foust put it, an  “extremely burdensome” situation for tax purposes. Foust added:

You’d need to work out the fair-market value [of a bitcoin] at the  time [of a coffee purchase] versus the fair-market value [at tax-filing  time], and you’d need to itemize the gains or losses. If you realized 40  cents on the gain, you’d need to pay a few pennies.   

In its 2014 guidance, the US Internal Revenue Service  (IRS) made its position on cryptocurrencies clear: they’re property, and  as such are subject to capital gains taxes. Not paying crypto-related  taxes, as CryptoGlobe has reported, can lead to fines up to $250,000.Despite  the difficulties, Starbucks seems set on the idea, and in a press  release Starbucks vice president in partnerships and payments noted it  will “play a pivotal role in developing practical, trusted and regulated  applications for consumers to convert their digital assets into U.S.  dollars for use at Starbucks.”

Customers May Not Know the “Real Cost of Compliance”

As  Kirk Phillips of the BitcoinCPA argues, tax law shouldn’t discourage  innovation, although cryptocurrency users may find themselves in  substantial trouble when tax day comes if they don’t properly manage  their transactions.