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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 eve

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?

bobyfyfy 6y ago
Is that a problem?
- eachro 6y ago
  It sounds like a big hassle for you or your accountant.
- apta 6y ago
  Yes. They're hampering the adoption of cryptocurrencies.
- BitwiseFool 6y ago
  It's one of those things that gets complicated pretty quickly. Essentially, for every transaction you make you have to determine if you made a profit or a loss with your crypto. The purchase date of the crypto you're converting into USD matters because you need that for short-term vs long-term capital gains. This problem also gets worse if you buy crypto at regular intervals, like I often do, because now you have different gain/loss potentials in the same transaction. 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.
  - seibelj 6y ago
    Look at the crypto trader's tax return and its 99 pages of forms and 999 pages of trade history. The government demands it!
  - icedchai 6y ago
    It's easier to forget about it and wait for them to fine you. Unless you're buying lambos, it probably won't happen.
    - dmitrygr 6y ago
      For anyone in the USA, do not take this advice. IRS is relentless and they go for the balls to make examples of people. Not a clever strategy.
      - true_religion 6y ago
        I day traded for a while, and got an IRS fine. If you simply accept they are right, then pay nothing will happen. 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.
        dmitrygr 6y ago
        But if they find posts like this, they won't be as kind. They care a lot about intent. And intent to flaunt rules is quite different than accidental noncompliance.
        jpmoral 6y ago
        I think you meant 'flout'.
        true_religion 6y ago
        I think they are lenient if you try to comply, but fail because of the complexity of the rules. Even if you make a post that essentially says "I won't try harder, because the rules are difficult to understand" isn't Mal intent; but an admission that your actions weren't accidental.
        nostrademons 6y ago
  - deleted 6y ago
    [deleted]
ericmay 6y ago
It would be a transfer wouldn't it? I'd be transferring from my wallet to yours. Would that generally be taxed? 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.
- javert 6y ago
  You have to pay capital gains on bitcoin if you spend it, even if you don't convert it to fiat first. 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.
- BitwiseFool 6y ago
  The taxable event occurs because the IRS sees crypto as property rather than a currency. Let's say you buy $100 worth of Bitcoin in the past. Now the value of your coins is $120. 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.
  - ignoramous 6y ago
    Dollar-tethered cryptos are then a better deal for a "crypto card", I guess?
    - hansvm 6y ago
      They'd potentially reduce the tax burden but still require a ton of paperwork.
  - dmurray 6y ago
    > The taxable event occurs because the IRS sees crypto as property rather than a currency. 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.
cbhl 6y ago
Reporting a few thousand small capital gains transactions on a US Tax Return is feasible. If you exceed the import transaction limits in, say, TurboTax, you can enter and e-file the summary of your transactions, and print out and snail mail the 50 pages of the statement itself. (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.)
MithrilTuxedo 6y ago
I've done it before. 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.
- tylerhou 6y ago
  How does it handle cost basis? Does it let you select individual lots to be sold per transaction?
  - qes 6y ago
    It seems like most people go with a simple FIFO or LIFO strategy, and crypto transaction tools support usually one or the other or both. Tracking cost basis for specific coins is considerably less common and I'm not sure what tools off hand even support that - none of the major exchanges that I'm aware of.
- xur17 6y ago
  Huh. I wonder how they handle proof of ownership with self custody.
kylebenzle 6y ago
Of course top comment in HN is essentially anti-crypto. More and more I think this site is run by COINTELPRO. But, for until this comment get removed. Yes, if you own property, then sell it for more than you paid for it, you owe capital gains. It is not a problem or confusing.
andrewfong 6y ago
Maybe Coinbase sets things up in such a way that the cap gains event is triggered only when the balance is paid off? 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?
- dumbfounder 6y ago
  It's a debit card, so there is no balance to pay off.
- jkhdigital 6y ago
  That sounds more like a credit card secured by your crypto assets... which might be the next product from Coinbase
chanfest22 6y ago
Co-Founder of CoinTracker (https://www.cointracker.io https://www.cointracker.io) (YC W18) here. You're exactly right. We built software to specifically automate this crypto tracking and tax compliance process. We've partnered with Coinbase and TurboTax to specifically solve this pain point. https://help.coinbase.com/en/coinbase/taxes-reports-and-financial-services/taxes/using-turbotax-or-cointracker-to-report-on-cryptocurrency https://help.coinbase.com/en/coinbase/taxes-reports-and-fina...
- notyourwork 6y ago
  > Partnered with TurboTax Makes me sad that they are further entrenching their tentacles in our tax system which further discourages the government from simplifying this process.
  - judge2020 6y ago
    Same goes for the Robinhood integration, sadly.
  - fourstar 6y ago
    Upset at a corporation who fixes inefficiencies in the free market? What? How does what TurboTax do prevent the government from changing anything?
    - rwiggum 6y ago
      This is how: https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free https://www.propublica.org/article/inside-turbotax-20-year-f...
      - fourstar 6y ago
        > But the success of TurboTax rests on a shaky foundation, one that could collapse overnight if the U.S. government did what most wealthy countries did long ago and made tax filing simple and free for most citizens. 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.
Klonoar 6y ago
I did this with the Shift Card way back, which was the original card for Coinbase spending. It was a massive pain in the ass to explain the transaction history. I wouldn't be surprised if Coinbase has improved upon that experience, but to what degree I'd be curious about. 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.
- wmf 6y ago
  If you understand all the gotchas you become a nocoiner and they don't want that.
awinder 6y ago
I wonder how smart this system is going to be — it’d be wise to have the rewards & purchasing happen on a stablecoin to avoid this. Then make users have to choose to then stash it somewhere they won’t draw from and trigger these events, if they want to “invest in a crypto”. It’d also be wise because coinbase can then charge their fees as they so do. 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.
xur17 6y ago
Maybe this will encourage lawmakers to finally add a de-minimis exemption.
m3kw9 6y ago
The transaction in the back end probably is just an internal transfer. You do a one off transaction say 1000 and you spend from that. So you only did a single asset sale
- smoovb 6y ago
  Better than a sale, would be a one off borrow, and pay back your loan each month. No tax event.
vmception 6y ago
You can stay long your crypto by depositing it into some DeFi platform to borrow against it. 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.

bobyfyfy 6y ago

Is that a problem?

eachro 6y ago
It sounds like a big hassle for you or your accountant.
apta 6y ago
Yes. They're hampering the adoption of cryptocurrencies.
BitwiseFool 6y ago
It's one of those things that gets complicated pretty quickly. Essentially, for every transaction you make you have to determine if you made a profit or a loss with your crypto. The purchase date of the crypto you're converting into USD matters because you need that for short-term vs long-term capital gains. This problem also gets worse if you buy crypto at regular intervals, like I often do, because now you have different gain/loss potentials in the same transaction. 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.
- seibelj 6y ago
  Look at the crypto trader's tax return and its 99 pages of forms and 999 pages of trade history. The government demands it!
- icedchai 6y ago
  It's easier to forget about it and wait for them to fine you. Unless you're buying lambos, it probably won't happen.
  - dmitrygr 6y ago
    For anyone in the USA, do not take this advice. IRS is relentless and they go for the balls to make examples of people. Not a clever strategy.
    - true_religion 6y ago
      I day traded for a while, and got an IRS fine. If you simply accept they are right, then pay nothing will happen. 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.
      - dmitrygr 6y ago
        But if they find posts like this, they won't be as kind. They care a lot about intent. And intent to flaunt rules is quite different than accidental noncompliance.
        jpmoral 6y ago
        I think you meant 'flout'.
        true_religion 6y ago
        I think they are lenient if you try to comply, but fail because of the complexity of the rules. Even if you make a post that essentially says "I won't try harder, because the rules are difficult to understand" isn't Mal intent; but an admission that your actions weren't accidental.
      - nostrademons 6y ago
- deleted 6y ago
  [deleted]

ericmay 6y ago

It would be a transfer wouldn't it? I'd be transferring from my wallet to yours. Would that generally be taxed? 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.

javert 6y ago
You have to pay capital gains on bitcoin if you spend it, even if you don't convert it to fiat first. 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.
BitwiseFool 6y ago
The taxable event occurs because the IRS sees crypto as property rather than a currency. Let's say you buy $100 worth of Bitcoin in the past. Now the value of your coins is $120. 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.
- ignoramous 6y ago
  Dollar-tethered cryptos are then a better deal for a "crypto card", I guess?
  - hansvm 6y ago
    They'd potentially reduce the tax burden but still require a ton of paperwork.
- dmurray 6y ago
  > The taxable event occurs because the IRS sees crypto as property rather than a currency. 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.

cbhl 6y ago

Reporting a few thousand small capital gains transactions on a US Tax Return is feasible. If you exceed the import transaction limits in, say, TurboTax, you can enter and e-file the summary of your transactions, and print out and snail mail the 50 pages of the statement itself. (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.)

MithrilTuxedo 6y ago

I've done it before. 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.

tylerhou 6y ago
How does it handle cost basis? Does it let you select individual lots to be sold per transaction?
- qes 6y ago
  It seems like most people go with a simple FIFO or LIFO strategy, and crypto transaction tools support usually one or the other or both. Tracking cost basis for specific coins is considerably less common and I'm not sure what tools off hand even support that - none of the major exchanges that I'm aware of.
xur17 6y ago
Huh. I wonder how they handle proof of ownership with self custody.

kylebenzle 6y ago

Of course top comment in HN is essentially anti-crypto. More and more I think this site is run by COINTELPRO. But, for until this comment get removed. Yes, if you own property, then sell it for more than you paid for it, you owe capital gains. It is not a problem or confusing.

andrewfong 6y ago

Maybe Coinbase sets things up in such a way that the cap gains event is triggered only when the balance is paid off? 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?

dumbfounder 6y ago
It's a debit card, so there is no balance to pay off.
jkhdigital 6y ago
That sounds more like a credit card secured by your crypto assets... which might be the next product from Coinbase

chanfest22 6y ago

Co-Founder of CoinTracker (https://www.cointracker.io https://www.cointracker.io) (YC W18) here. You're exactly right. We built software to specifically automate this crypto tracking and tax compliance process. We've partnered with Coinbase and TurboTax to specifically solve this pain point. https://help.coinbase.com/en/coinbase/taxes-reports-and-financial-services/taxes/using-turbotax-or-cointracker-to-report-on-cryptocurrency https://help.coinbase.com/en/coinbase/taxes-reports-and-fina...

notyourwork 6y ago
> Partnered with TurboTax Makes me sad that they are further entrenching their tentacles in our tax system which further discourages the government from simplifying this process.
- judge2020 6y ago
  Same goes for the Robinhood integration, sadly.
- fourstar 6y ago
  Upset at a corporation who fixes inefficiencies in the free market? What? How does what TurboTax do prevent the government from changing anything?
  - rwiggum 6y ago
    This is how: https://www.propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free https://www.propublica.org/article/inside-turbotax-20-year-f...
    - fourstar 6y ago
      > But the success of TurboTax rests on a shaky foundation, one that could collapse overnight if the U.S. government did what most wealthy countries did long ago and made tax filing simple and free for most citizens. 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.

Klonoar 6y ago

I did this with the Shift Card way back, which was the original card for Coinbase spending. It was a massive pain in the ass to explain the transaction history. I wouldn't be surprised if Coinbase has improved upon that experience, but to what degree I'd be curious about. 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.

wmf 6y ago
If you understand all the gotchas you become a nocoiner and they don't want that.

awinder 6y ago

I wonder how smart this system is going to be — it’d be wise to have the rewards & purchasing happen on a stablecoin to avoid this. Then make users have to choose to then stash it somewhere they won’t draw from and trigger these events, if they want to “invest in a crypto”. It’d also be wise because coinbase can then charge their fees as they so do. 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.

xur17 6y ago

Maybe this will encourage lawmakers to finally add a de-minimis exemption.

m3kw9 6y ago

The transaction in the back end probably is just an internal transfer. You do a one off transaction say 1000 and you spend from that. So you only did a single asset sale

smoovb 6y ago
Better than a sale, would be a one off borrow, and pay back your loan each month. No tax event.

vmception 6y ago

You can stay long your crypto by depositing it into some DeFi platform to borrow against it. 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.