Visa, MasterCard crypto credit and debit cards: do i need to get one?

Coinbase has launched its own debit card to make it easier to use cryptocurrencies in payments and investments.

Coinbase

Some of the biggest credit card companies on the planet are trying to make money with Bitcoin easier than ever.

However, accountants and financial advisers say CNBC has a major problem. Every time you swipe one of these crypto cards, a “taxable event” is logged.

“One thing that many people ignore is that buying coffee and all kinds of consumer goods using cryptocurrencies can lead to capital gains,” said Shehan Chandrasekera, chartered accountant and chief. Declared. The tax strategy of CoinTracker.io, a digital currency tax software company that helps customers track crypto on virtual wallet addresses and manage their corresponding tax obligations.

There is always a difference between the amount paid for cryptocurrency based on cost and the market value when using it. The difference can result in capital gains taxes in addition to other taxes you have to pay, such as sales tax.

However, many don’t seem to care about the tax headaches.

Visa, which has partnered with Circle, BlockFi and Coinbase, will bring more than $ 1 billion in cryptocurrency to CNBC in July through cards encrypted by consumers around the world in the first six months of 2021. And said it was spent on services.

Meanwhile, this summer, MasterCard will launch a credit card with a Gemini crypto exchange co-founded by billionaires Cameron and Tyler Winklevoss.

The benefits are certainly fascinating. With no annual fee, you will get up to 4% crypto reward for every purchase you make. Moreover, it provides a simple exit ramp for crypto money.

But maybe the main reason these tax effects don’t put people down is because they don’t have a clue that they are racking up tax bills every time they use their cards.

Some people are like, “Oh, I’m not selling my crypto, so I don’t have to pay capital gains tax. But this is completely wrong. “

Buying coffee is a “taxable event”

The IRS treats cryptocurrencies like Bitcoin as assets. In other words, cryptocurrencies are taxed the same way as stocks and real estate.

“Whenever we receive, sell or trade cryptocurrency, we need to recognize our income,” said Shivani Jain, chartered accountant and partner at accounting, tax and consulting firm SaxLLP. Declared.

“If you make a payment with your Coinbase card, you are considered to have sold the cryptocurrency and you are taxed,” she said.

The government is basically saying that if you buy something in cryptocurrency, it’s like liquidating your cryptocurrency, just like selling other assets. .. The IRS also doesn’t care about the size of the transaction – it’s always taxable.

“There is no minimum capital gain. For microtransactions, this also applies to gains of a dime or less, ”said Nyradia Grawar of the Cryptocurrency Policy Think Tank Coin Center.

Agrawal said the IRS is unlikely to ask you for a penny after you, but if you can’t follow it with a penny profit when you buy coffee, you’re technically compliant. It means not like a moment of profit.

Experts tell CNBC that it is nearly impossible for Bitcoin to function like the money intended by these rules, and that it is nearly impossible to fully comply with them.

“When it comes to consumer adoption of cryptocurrency as a payment method, the current treatment of property is very bad,” said Chandra Sekera. “And it’s your responsibility to keep track of taxes. Keep a good record of basic costs and selling prices.

Mr Agrawal described a solution to create a “minimum exemption” for cryptocurrency transactions, similar to that proposed in the cryptocurrency law introduced in the House of Representatives last year. The de minimis tax exemption means that the fixed amount of capital gains (perhaps up to $ 200) for crypto-based transactions is excluded from the rules for reporting capital gains.

loophole

There are a few loopholes to avoid paying taxes every time you swipe a crypto card.

For example, some cards are associated with the user’s stablecoin possession. Stablecoin is a specific subset of cryptocurrencies that have a fixed value in real world assets, such as fiat currencies like the US dollar and commodities like gold.

“There is no capital gains tax because it is pegged to the US dollar,” explained Chandra Sekera.

There may be a few cents of daily fluctuations, but Chandra Sekera says it ultimately doesn’t matter because it tends to be balanced. “Some days you spend $ 0.98 and some days you spend $ 1.02, so every year it’s like setting things to zero,” he said.

Crypto rewards also offer another way to counter some of these capital gains taxes.

With any of these cards, you can earn up to 4% on any crypto rewards you choose. These crypto fees can be more than just fiat rewards like the US dollar. Plus, like most card-based rewards programs, the amount you earn may not be taxable.

“Currently, the IRS has no indication of how crypto fees are imposed on expenses, but when you look at how the IRS treats credit card rewards, they are rebates or you can see that ‘it is treated as a discount and is generally not taxed. “Jane said.

This means, tentatively, that it makes sense to treat crypto fees the same, Jain said, until more guidance from the IRS becomes available.

Chandrasekera agrees that crypto fees are unlikely to be taxable, as crypto fees are considered a discount off the selling price of what you buy, not the consumer’s labor income.

And, of course, trading can be a loss of capital. This is the flip side of capital gains obligations. Chandrasekera states that these types of crypto debit card transactions actually lead to tax cuts.

Again, it is the user’s responsibility to calculate these losses. This can be tedious as it has to be calculated for each crypto card transaction.

Experts told CNBC they were ultimately skeptical about whether crypto cards were worth the necessary accounting acrobatics. However, the data seems to indicate that users are stacking these cards, at least for now.

Visa, MasterCard crypto credit and debit cards: do i need to get one?

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