Spending your satoshis on a latte has never been simple. Technically speaking, at least.
In cities like Washington D.C., New York City, San Francisco and Los Angeles, grabbing a latte for Bitcoin (BTC) is not something new.
The problem is what happens after you tap to pay.
According to a blog post by Nicholas Anthony of the Cato Institute's Center for Monetary and Financial Alternatives, the convenience of spending Bitcoin ends the moment you close your wallet app.
The tax code imposes a staggering compliance burden on anyone who uses Bitcoin as everyday money.
Something as routine as buying a cup of coffee each day with Bitcoin, Anthony writes, can result in over 100 pages of tax filings by year-end, and Form 8949 alone can run to around 70 pages.
Related: Bitcoin Basics: 'How You Use Crypto Is How You're Taxed'
What is the capital gains tax?
The culprit is the capital gains tax. In simple terms, capital gains tax is a levy on the profit you make when you sell or exchange an asset that has appreciated.
The IRS treats Bitcoin as property, not currency. So every time you spend it, even on a $5 cappuccino, you are technically "disposing" of an asset.
That means you must report the date you acquired the Bitcoin, the date you spent it, your original purchase price, and the gain or loss on each transaction, all on Form 8949, then compiled on Schedule D of your Form 1040.
Anthony identifies three compounding problems with this system.
First, capital gains tax rates favor long-term holding. It actively discourages using Bitcoin as a currency since spending it undermines the tax-advantaged hold.
Second, the sheer complexity of administering the tax creates a disproportionate burden on users of alternative currencies compared to a simple sales tax.
Third, the ever-present threat of an audit, even for simple errors in a process this convoluted, is enough to deter anyone from even trying.
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How Congress could fix this
Anthony outlines four possible legislative remedies. The cleanest solution is eliminating capital gains taxes entirely.
A narrower fix would be to stop applying capital gains taxes to cryptocurrency and foreign currency use in transactions.
A third option is exempting capital gains from all purchases of goods and services, though Anthony notes this could create its own compliance headaches if people must prove each transaction qualifies.