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.