Cato Says U.S. Tax Rules Hinder Bitcoin for Daily Payments

A Cato Institute paper published this week argues current U.S. tax rules make it impractical to use bitcoin for routine payments. Research fellow Nick Anthony says treating bitcoin as property and taxing each payment as a capital gain creates heavy paperwork for ordinary users.

Under Internal Revenue Service guidance, virtual currency is treated as property rather than currency. When holders spend bitcoin, they must calculate any gain or loss using the asset’s acquisition date and cost basis and report each transaction, typically on Form 8949 and related schedules.

The paper gives a concrete example: paying for a cup of coffee with bitcoin every day can generate dozens of pages of tax filings over time. Taxpayers must list acquisition dates, cost basis and the value of every payment, the report says, which the authors say shifts administrative burden onto consumers rather than traders.

Cato outlines policy options to reduce reporting obligations for small transactions. These include exempting consumer crypto payments from capital gains tax, creating a de minimis threshold to exclude small payments from reporting, or carving out a specific exemption for payments made in cryptocurrency. The paper cites the Virtual Currency Tax Fairness Act, which would exempt gains under $200, and notes that amount would not cover typical consumer spending.

The report was released during tax season as taxpayers and preparers deal with expanded crypto disclosure rules the IRS has added in recent years. The paper states those new lines and forms increase compliance work for tax professionals and for individuals who use digital currency.

Anthony wrote, “Bitcoin taxes make no sense,” and added, “It’s never been easier to use bitcoin as money. Yet, at the same time, the tax code puts an incredible burden on law-abiding citizens.” The paper calls on lawmakers to consider exemptions or thresholds that would limit capital gains reporting for everyday crypto payments.

The Trump administration has expressed support for a de minimis exemption and said it will continue to consider legislative options. Members of Congress are discussing bills that would change reporting rules or raise the threshold for exempting small cryptocurrency gains.