Steak ‘n Shake Embraces Bitcoin Payments: Navigating the Tax Implications
Steak ‘n Shake, a popular U.S. fast casual chain, has recently made headlines by accepting Bitcoin as a payment method for its array of burgers and shakes. This move marks a significant step in cryptocurrency’s integration into mainstream commerce. However, this convenience comes with its own set of complexities, particularly concerning tax obligations.
Understanding the Tax Requirements
Every purchase made with Bitcoin at Steak ‘n Shake is considered a taxable event. Cryptocurrencies like Bitcoin are treated as property for tax purposes, meaning they are subject to capital gains tax. This classification aligns them with other assets such as stocks or bonds.
Lawrence Zltakin, Vice President of Tax at Coinbase, emphasizes the importance of recognizing these transactions as taxable. “Any use of Bitcoin for any purpose is treated as a taxable transaction,” he explains. This means that the onus is on the taxpayer to track and report every transaction, no matter how small, to the Internal Revenue Service (IRS).
Calculating Crypto Taxes
When it comes to calculating taxes on Bitcoin transactions, the IRS prefers the “first in, first out” (FIFO) method. This approach assumes that the first tokens purchased are the first ones sold. Lorenzo Abbatiello, founder of Lorenzo Tax, advises taxpayers to choose a consistent method for calculating their crypto-related taxes and stick to it throughout the year.
For those unsure about how to manage these calculations, several software solutions are available to help track cryptocurrency transactions and compute the taxes due. Additionally, consulting with a certified accountant who specializes in crypto taxes can provide tailored advice and peace of mind.
IRS Enforcement and Compliance
While the IRS typically does not audit small discrepancies in tax filings, the introduction of more stringent reporting measures is on the horizon. Centralized exchanges like Coinbase and Kraken will soon be required to report more detailed transaction data to the IRS.
This increased transparency means that even small transactions, such as a $15 meal at Steak ‘n Shake paid with Bitcoin, will be reported to the government. Zltakin warns, “If you dispose of even a small component of your Bitcoin amount… that is going to be reported to the government.”
The Push for a De Minimis Exemption
There is a growing call among crypto advocates for a de minimis tax exemption for small cryptocurrency transactions. Such an exemption would relieve crypto users from the obligation to report transactions under a certain threshold, say $300, simplifying the use of cryptocurrencies for everyday purchases.
Despite gaining some traction in Congress, the de minimis exemption is not yet a reality. Until such regulations are passed, crypto users must remain diligent in tracking and reporting all transactions, no matter the size.
Alternatives to Bitcoin for Tax-Free Transactions
For those looking to avoid the tax implications of using volatile cryptocurrencies like Bitcoin for small purchases, stablecoins present a viable alternative. Stablecoins like USDC are pegged to the U.S. dollar and do not incur capital gains or losses, making them not a taxable event when used for purchases.
However, converting Bitcoin or other cryptocurrencies into stablecoins is a taxable event in itself. Zltakin notes, “The actual conversion itself is a taxable transaction, so you’re not avoiding it.”
Final Thoughts
The integration of Bitcoin into everyday transactions like those at Steak ‘n Shake represents a significant advancement for cryptocurrency adoption. However, it also underscores the need for clear understanding and compliance with tax regulations. As the landscape of digital currency continues to evolve, staying informed and prepared is key.
For further insights into navigating the complexities of cryptocurrency in commerce, explore the challenges and opportunities in recruiting for the blockchain sector, or delve into the intricacies of blockchain recruitment.
