By Lucas Williams
If you think that incorporating cryptocurrencies into everyday spending will be difficult, think again. It turns out that the world’s biggest credit card companies are making it easier for users to earn their Bitcoin and spend it too. But financial advisors and accountants are telling news outlets that there’s a major catch. Each time you swipe your crypto credit card when making a purchase, you log a taxable event.
It’s a major caveat that most consumers don’t realize. Whenever they will spend their crypto to buy a consumer item, it triggers a capital gains event. This is according to the head of tax strategy and CPA at CoinTracker, Shehan Chandrasekera. CoinTracker is a tax software company for digital currency. It helps clients in tracking their crypto assets present in various exchange wallets. This way, they can carefully handle tax obligations.
Remember: there will always be a difference between the cost basis (what you paid for the cryptocurrency), and the current market value when you spend it. The difference between the two values can trigger an income capital gains tax. This will be in addition to other forms of tax, such as sales tax. But plenty of consumers don’t care much for the tax issue.
Some interesting cryptocurrency stats for this year relate to Visa, which partners with various crypto exchanges. These include Coinbase, BlockFi, and Circle. The credit card company stated that consumers spent more than $1 billion in crypto on services and goods. They did so using their crypto-linked card during the first half of 2021.
In addition, MasterCard is looking forward to co-launch a credit card with the Gemini crypto exchange. Fun fact: Gemini was co-founded by the tech billionaires Tyler and Cameron Winklevoss. Nevertheless, these cards come with enticing rewards. It’s an easy off-ramp for your cryptocurrency, you’ll get 4 percent back in crypto whenever you make a purchase, and no annual fees.
Some consumers think that because they aren’t selling their crypto, they don’t have to pay capital gains taxes. However, according to Chandrasekera, this is a misconception. But how can something as routine as buying coffee be a taxable event? Remember, the IRS treats digital currencies, such as Bitcoin, as property. This means they are taxed in the same way as real property or stocks. So whenever you exchange, sell, or get cryptocurrency, the IRS has to recognize your income.
So suppose you use your Coinbase card to make a payment. It indicates that you sold the cryptocurrency, triggering a tax event. So when you purchase an item with cryptocurrency, it’s as if you liquidated it. This is the same as selling any other sort of property. Regardless of the size of the transaction, it’s still taxable.
I don’t understand what is so wrong with people thinking that they should not be paying taxes on their cryptocurrency holdings. Cryptocurrencies are digital assets. So there is text on every asset that one holds. Simple as that.
Because there is no such things as taxes. There are fines and fees. Of youre using something that is the governments and isn’t yours, it’s a fee. If they are making you pay for something that you already own, like land tax, it’s a fine for being a contributing member of society. That form of “tax” is criminal. You wanna fine us for using roadways, that’s fine. REFUSE TO BE FINED FOR USING YOUR DRIVEWAY…
I would love to buy coffee with my crypto credit card even if I have to pay taxes on it. For me the part ‘buy coffee with crypto’ is more important than anything else.
Cryptocurrencies are getting a hold of the world and it is showing. But I am not sure if that’s a really good idea because of the threats that come with having and spending digital currencies.