Is Buying Stuff With Crypto a Taxable Event?

The future is here. We want to buy goods and services all over the globe at the click of a button. Crypto can empower this to happen, but how can the tax codes get in the way?

December 10, 2021

The dream of many Cryptocurrencies out on the market is to facilitate a means of currency exchange that's faster, cross-border, and not defined by any government entity.

Networks like the lightning network are empowering that today. Look at El Salvador as an example. El Salvador made Bitcoin a critical factor in their economic future and adopted Lightning Network. Use has skyrocketed!

How does using crypto to buy things affect US taxpayers?

As we've discussed in other articles, Bitcoin and other currency get taxed in the US as "personal property," meaning it is a taxable transaction when you sell or dispose of that property! So, if you've been following along with this series, you've probably heard me say before that cryptocurrencies, despite having the word "currency," are not currencies; they are, in fact, capital assets.

So, when you use them to pay for things, this is effectively the same thing as taking a collectible baseball card and trading it for a pizza, right, you have disposed of the baseball card, at its full market value, and you have acquired the pizza. You would pay taxes as though you sold that baseball card.

This example is the same thing for cryptocurrencies; you've got some BTC, you want to spend a couple sats on buying something. That is the sale of a fraction of your BTC at the full market value at that moment.

Meticulously track transactions

Since these transactions are taxable, if you're using Cryptos to buy and sell things regularly, you want to be extremely careful that you have access to all of that data. Unlike spending dollars, which does not cause taxes for capital gain purposes, and so you don't need to track it on a form 1099, you would need to track every one of those transactions if you were to be buying things regularly with your crypto assets.

So make sure you're using an institution or a blockchain, it's easy to get the data from, then you can work with a firm like Vincere Tax, and upload that data. We can ensure your transactions are clean, look good, and are validated. We can then file your taxes using good 1099, Just like you would with any other capital assets. So again, spending your crypto to buy goods or services does create a taxable event. All right, I hope this is helpful. See you in the next one!

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