I googled that shit. IRS is a mothafucka. Yes it is taxed as capital gains when you use a card backed with crypto.
Visa and MasterCard are trying to help users spend and earn bitcoin, but accountants say these crypto debit and credit cards can lead to confusing tax bills.
www.cnbc.com
Some of the biggest credit card companies on the planet are trying to make it easier than ever to spend and earn bitcoin.
But accountants and financial advisers tell CNBC there is a massive catch. Every time you swipe one of these crypto cards, you’re logging a “taxable event.”
“The one thing that a lot of people don’t realize is that whenever you spend cryptocurrencies to buy a cup of coffee, or any type of consumer item, that triggers a capital gains event,” said Shehan Chandrasekera, a CPA and head of tax strategy at
CoinTracker.io, a digital currency tax software company that helps clients track their crypto across virtual wallet addresses and manage their corresponding tax obligations.
There’s always a difference between how much you paid for the cryptocurrency, which is the cost basis, and the market value at the time you spend it. That difference can trigger income capital gains taxes, in addition to the other taxes you have to pay, such as sales tax.
But a lot of people don’t seem to care about the tax headache.
Visa, which partners with Circle, BlockFi and Coinbase, told CNBC in July that more than $1 billion worth of cryptocurrency was spent by consumers globally on goods and services through their crypto-linked cards in the first six months of 2021.
Meanwhile, this summer,
MasterCard will launch a credit card with crypto exchange Gemini, co-founded by billionaires Cameron Winklevoss and Tyler Winklevoss.
The perks are indeed enticing: no annual fees,
up to 4% back in crypto rewards whenever you buy something, and it offers an easy off-ramp for your crypto cash.
But perhaps the biggest reason these tax implications aren’t getting people down is that they have no clue they are racking up a tax bill every time they use their card.
“Some people are like, ‘Oh, I’m not selling my crypto, so I don’t have to pay capital gains taxes.’ But that’s completely wrong,” said Chandrasekera.
Buying coffee is a ‘taxable event’
The IRS treats virtual currencies such as bitcoin
as property, meaning that they are taxed in a manner similar to stocks or real property.
“Anytime you receive, sell or exchange cryptocurrency, income would need to be recognized,” according to Shivani Jain, a certified public accountant and partner at accounting, tax and advisory firm Sax LLP.
“When you make a payment using a Coinbase card, you are deemed to have sold the cryptocurrency, which results in a tax event,” she said.
The government essentially says that if you buy something with crypto, it is as though you liquidated your crypto, no different from selling any other property. The IRS also doesn’t care how small the transaction is — it’s still taxable.
“There’s no minimum for capital gains. It applies for even a penny of gains or even less than a penny, in the case of a micro transaction,” said Neeraj Agrawal of Coin Center, a cryptocurrency policy think tank.
While it is probably unlikely that the IRS is going to come after you for a penny, Agrawal said, it does mean that you are technically not complying with the law if you make a penny’s worth of gains when you buy a coffee and fail to track that as a gains event.
Experts tell CNBC that it is nearly impossible for bitcoin to work more like the cash that it was intended to be with rules like these, which are difficult to comply with completely.