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The tax policies in the United States are complex, and when it comes to cryptocurrencies, they are even more difficult to navigate. Regardless of the government’s stance on digital currencies, taxation laws in the country don’t allow users to make use of their bitcoins. Could it be possible that the low adoption of cryptocurrencies in the US is because of complex and draconian tax laws and not the unwillingness of bitcoin holders?

An Inquiry Into Tax Laws

In a recent blog post on Medium, George Alex Popescu, founder and CEO of Blockchain Times, spoke about the tax implications of a Bitcoin transaction. Per the Internal Revenue Service (IRS), Bitcoin or any other cryptocurrency is counted as property, because of which spending Bitcoin essentially means transferring property in tax terms.

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Popescu explains how taxation is making Bitcoin a nuisance for the users, which they would rather avoid. For instance, if a user wants to buy a $5 coffee for Bitcoin, he will have to pay about 0.00075 Bitcoins for the same. However, as this transaction is technically a transfer of property, the user is also subject to tax.

He describes further:

“Here is a rough way on what this tax is. You have to calculate at what USD/BTC price you purchased these 0.00075 Bitcoins; let’s say $250 per Bitcoin. You have to look at what USD price you sold these Bitcoins, let’s say today at $6600. Then you have to look up your tax rate; let’s say 30%. Therefore in addition to paying for your coffee with 0.000075 BTC, you also have to write a check to the IRS for 0.00075*(6600–250)*0.30=$1.42.”

A simple calculation shows that coffee becomes about 28 percent more expensive when paid for using bitcoin. If you buy coffee 20 days of the month, you will end up paying $28.4 to the IRS extra (using the above example).

How Will the Users Handle These Taxes?

The implications of such policies are mind-boggling. First, the user has to ensure that the currency he holds is the one that is accepted at coffee outlets. If he holds Litecoin [LTC] but the store only accepts bitcoin [BTC], there are potentially 2 chargeable tax events – one for the conversion of LTC to BTC and one for the purchase of the coffee.

He also needs to track every one of these transactions on an ongoing basis, a hefty burden for simply using cryptocurrencies in place of fiat. On this basis, fiat is far more user-friendly – for now.

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