I was under the impression that spending your crypto required you to file and pay capital gains tax. If this is true, won't you have to have a line item for every single purchase you made with this card for the whole year on your schedule D?
https://help.coinbase.com/en/coinbase/taxes-reports-and-fina...
Makes me sad that they are further entrenching their tentacles in our tax system which further discourages the government from simplifying this process.
If the system is vulnerable to exploitation, that’s not the fault of Intuit. They’re fixing inefficiencies in the market, and adding upsells (common for many companies in tech), is part of their business model.
I don’t get the hate of TurboTax if you’ve actually used it, since it’s incredibly simple and saves time and money (from my experience).
Don’t hate the player.
Sure, the vulnerability isn't Intuit's problem. But exploiting it is Intuit's problem.
>They’re fixing inefficiencies in the market, and adding upsells (common for many companies in tech), is part of their business model.
How are they fixing inefficiencies? If they simply wrote software I could see that. But they're lobbying for increasing inefficiencies. That's the opposite of fixing.
>I don’t get the hate of TurboTax if you’ve actually used it, since it’s incredibly simple and saves time and money (from my experience).
I use it every year. Yeah, it works fairly well.
It's not a game and a matter of hate, it's just a fact that filing your taxes is complicated because of Intuit.
I asked if I could pay with BTC and my bank passed it up until they got word back from Fanny Mae that it was okay so long as you can demonstrate X years of ownership. I think they made a public announcement about it. It was shortly after BTC hit its peak a couple years ago. Coinbase let me export something that satisfied the bank and government that I wasn't money laundering (I'd bought the BTC many years before for less than $10k with money for a bank account I still owned, so I could show the transactions there too).
For my taxes, Coinbase has a tool for exporting that calculates that sort of thing. You just select the time range and it gives you all the transactions and how much they appreciated from when you last bought that much.
(I've done this before with Betterment, when a bunch of $10 deposits each turned into like 7-8 small lots that were a few dollars each.)
I don't particularly understand why everyone's happy to gloss over tax implications being undiscussed on things like this. Whether or not it's right (I don't believe it is), the fact remains that the average new user is not aware of this quirk of Crypto.
I was under the impression that for capital gains taxes it's more so buying, holding, then selling for a profit.
Could be mistaken here though.
If you decide to send $5 worth of bitcoin as payment for something, they consider that a taxable event. You sold X amount of bitcoin, which appreciated 20% value from when you bought it. That X amount was worth $4, now it is worth $5, so you would owe a tiny amount in capital gains tax on $1 you gained.
Edit: This exact same scenario happens for Foreign Exchange, but the government excludes most transactions under a certain amount because it's too complicated for travelers. Also, the rate of USD to EURO doesn't fluctuate as wildly as crypto can, so the gains are minimal anyways.
The IRS doesn't make the tax law. How cryptocurrency transactions get taxed is a matter for legislatures and the courts.
Obviously, not everyone has the resources to fight the IRS, and your life will go much easier if your interpretation of the tax code matches that of the IRS. But the way you explain it here puts the cart before the horse.
"In Notice 2014-21, the IRS applied general principles of tax law to determine that virtual currency is property for federal tax purposes"
Here's the current page about IRS policy on crypto: https://www.irs.gov/newsroom/virtual-currency-irs-issues-add...
IRS guidance aren't laws but they detail how the IRS is going to treat tax collection based on current law. At some point in the future Congress may classify crypto currencies as actual currencies such as the Yen, Euro, etc. at which point the tax laws about currency exchange would apply instead of capital gains on property.
Legislative action could of course change this, but until then you are probably tilting at windmills.
IANAL but tax is also levied on fiat currencies where similar profit/loss occurs. In that sense, the IRS is treating crypto like it treats other currencies.
Congress addressed this in 1986, the IRS is just administering duly enacted tax law:
It very literally does. Agency rules are delegated law [1].
Congress delegates rule making authority to the agencies within certain boundaries. Those rules have the force of law.
[1] https://en.m.wikipedia.org/wiki/United_States_administrative...
e.g. buy $10 of coins, use same coins to buy a meal later, if the value of the meal is $20 (whether denominated in fiat or the equivalent bitcoin), you have a $10 capital gain.
E.g. imagine I incur $10 USD on the card. From Coinbase's perspective, I just owe them $10 USD + maybe interest at the end of some fixed time period. I could pay them in USD or I could pay them in crypto. Since it's not mandated I pay in crypto, you can't really say I've "spent" my crypto until I use it to pay off my balance. In which case you only end up with 12 taxable events per year.
I'm sure there's some arbitrage opportunity I'm not accounting for, but it seems like this might work?
which might be the next product from Coinbase
This is also fundamentally not so different from e.g. having spend vehicles with your brokerage. But the addressable market may be higher / different for coinbase which could cause a lot of headaches, like this one, if not carefully managed.
Borrow a stablecoin like DAI and deposit that on Coinbase and you can spend it on the debit card and earn rewards.
Don't forget to buy insurance on your DeFi use to mitigate a wider variety of risks.
Sure, a program can calculate this for you, but it does make filing more complicated. You'll probably have a very long list of items on your 1099.
Their fines aren’t extra ordinary, and they are very much willing to help you come into compliance.
For example, if you do have software that can output all your crypto trades, they will accept that in an audit, and likely only fine you for what you got wrong and not merely not following procedure.
I missed the back of a capital gains worksheet once when reporting my taxes. Got a bill for $11,000+, between the missing stock sales and an education credit my wife took that the IRS was suspicious of. After actually tracking down the stock sales in question, reporting their cost basis (the IRS had assumed $0, because they don't have it so why not assume the value most favorable to them?), and refiguring the taxes, the ~$7K in tax liability had declined to $60. Then because that was so low, I got the ~$2K penalty waived. Then I produced documentation to show my wife was eligible for the education tax credit, and there went another $2K. By the time I had a full amended 1040, the $11K was down to $60, so I sent them a check for $60 along with all my documentation and got back a nice letter saying the matter was closed and no further tax was due.
Also be very wary of the CA FTB. They don't send you notices if you owe money; instead, they just record it as a debt, charge interest and penalties on it, and then send you a bill for the full total when the statute of limitations is about to expire. If you're aware of any problems in your federal tax return and you owe anything to California (which may occur even if you're not a CA resident - they tax stock granted at a CA job even if you later move out of state), make sure to pro-actively get in touch with them with an amended return and any money owed.
I agree 100%.
Though, I think that most people hear stories about a multi-thousand dollar tax notice, and become terrified that the IRS will force them to pay that money.
However, as your story illustrates, the notice they give is the worst case scenario. If you have any kind of documentation, you can add that amend your return and it'll be accepted by the IRS drastically reducing your tax bill.
This is made easier, because you're working with a real live human being on the other end---one who at least in my case, I could call and ask questions like 'what do documentation do you specifically need to see for X?' instead of guessing as is the norm for non accountants working within the complex tax code.
e.g. https://www.propublica.org/article/irs-sorry-but-its-just-ea...
Your casual bitcoin spender is not going to be like that at all. Their under reported transactions will be difficult to even find. If you do find them, their true cost basis will be difficult to determine.