Because you're totally doing that, right?
Image: Flickr/Alper Cugun
Despite its sky-high value, there are many barriers to using Bitcoin for normal things like buying a coffee or groceries. Some of these obstacles are technical, and some social, but a big one has always been the question of taxes.
Right now, every single Bitcoin transaction in the US, no matter how small, must be recorded and later reported to the government in order to pay a capital gains tax. This tax is normally incurred when selling property, stocks, or precious metals—not domestic currency.
The Cryptocurrency Tax Fairness Act of 2017, introduced Thursday by Democratic Rep. Jared Polis and Republican Rep. David Schweikert, would remove this requirement for any Bitcoin transaction under $600 USD. If passed, this law would mean that average folks can use Bitcoin to pay for most things without keeping track of every single purchase and later having to pay capital gains tax on their cryptocurrency.
"Right now, under the law, you have to keep track of every transaction, whether it's for a coffee here or an MP3 player there," Jerry Brito, executive director of Coin Center, which consulted on the bill, told me over the phone. "Because the IRS treats Bitcoin as property for tax purposes, you owe capital gains tax whenever you dispose of Bitcoin, whether that's selling 10,000 bitcoins or buying a coffee."
The issue of Bitcoin and taxes has been a thorny one to date. It's currently unclear, first of all, how many people are actually following the existing rules. Secondly, the government has arguably taken a rather heavy-handed approach enforcing them. In November of last year, the IRS ordered popular Bitcoin exchange Coinbase to reveal the identities of all of its customers over a three-year period—potentially millions of people—to see if they've been paying their taxes. According to Brito, the Cryptocurrency Tax Fairness Act would have made such a broad order unnecessary.
"Individuals all over the world are starting to use cryptocurrencies for small every day transactions, yet here in the States we have fallen behind and make cryptocurrency use more of a challenge than it needs to be," said Congressman Schweikert in a statement. "With this simple legislative change, anyone can make digital payments to buy a newspaper or a bike without worrying about tax code challenges."
If the Act is passed, it would remove a big barrier to using Bitcoin in the real world. However, Brito said, it's not the only thing that needs to change before the cryptocurrency can be more than a speculative asset or financial tool.
"There are a lot of hurdles before we see widespread use of Bitcoin," he said. "Some of them have to do with the technology advancing so it can handle more transactions, and some of them have to do with usability. But one of those has been the issue of tax—Bitcoin is the one payment system where I have to keep track of capital gains on every transaction. That creates friction, and this law would remove that friction."
Of course, there's a long way to go yet before the Cryptocurrency Tax Fairness Act can become law. And as with any law, it stands a better chance if the community gets together to put pressure on their representatives. According to Brito, support is what's needed now.
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