Story by: AARON HANKIN
A cup of coffee might cure a headache for some, but for those championing the news you may soon be able to pay for your latte with bitcoin, an even bigger headache — and it involves the tax man — is brewing.
On Monday, The Block reported that coffee giant Starbucks SBUX, -0.43% received significant equity in Bakkt, the newly formed digital asset ecosystem. In return, Starbucks stores would install Bakkt software yet this year to allow coffee guzzlers to pay using bitcoin BTCUSD, +0.19%
As tempting as it may sound to elevate the technology around this daily habit, the crypto-for-coffee transaction has one glaring pain point: tax reporting.
Current rules require every crypto transaction be logged, for online, big-ticket splurges all the way down to any tap-and-go at a bitcoin-embracing bodega. Starbucks may be a big chain — it may even think it can eventually move the regulatory needle when it comes to crypto — but its customers are not out of the reach of the Internal Revenue Service.
“If you were to use bitcoin to buy coffee it is technically feasible, but it would be extremely burdensome for tax purposes,” said James Foust, senior research fellow at Coin Center, a nonprofit research and advocacy center focused on cryptocurrency and decentralized technology. It too is helping to take a look at the regulatory burden around everyday purchases with digital assets.
“You’d need to work out the fair market value [of a bitcoin] at the time [of 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,” he said.
Given bitcoin’s volatility, this could prove tricky.
Reminder that if Starbucks does accept bitcoin at some point, you will be required to calculate capital gains on every cup of coffee you buy https://coincenter.org/entry/bitcoin-taxation-is-broken-here-s-how-to-fix-it … We are trying to change that
Bitcoin taxation is broken. Here’s how to fix it. | Coin Center
An exemption for small gains would take most of the headache out of using digital currencies like Bitcoin.
The biggest dilemma may be, is it worth it? Because for now, the rule is established. In a 2014 guidance, the IRS made clear: “For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” That means the swap of one property for another must be reported.
Starbucks seems set on the idea. At the launch of Bakkt in August 2018, Maria Smith, then vice president in partnerships and payments for Starbucks, said in a press release that as a flagship retailer “Starbucks 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.”
Starbucks did not respond to requests for comment on the equity stake and progress for the implementation.
Original story: https://www.marketwatch.com/story/starbucks-accepting-bitcoin-could-create-one-grande-headache-2019-03-06