As many crypto fans know, the SEC considers crypto a commodity and so you are responsible for taxes on the difference between the cost basis at which you acquired the asset versus the market value received when you spend it.
If your crypto supplier doesn’t provide you the information you need to file the capital gains, then you better love record-keeping or go to the article and read about the loopholes:
“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.
“The current property treatment is very bad when it comes to consumer adoption of cryptocurrency as a method of payment,” said Chandrasekera. “And it is your responsibility to figure out the taxes, to keep good records of the cost basis and sales price.”
Agrawal said a solution is creating a “de minimis exemption” for crypto transactions, similar to what was proposed in the Virtual Currency Fairness Act introduced in the House last year. A de minimis exemption would mean that a set amount, perhaps up to $200, of capital gains for crypto-based transactions would be excluded from the capital gains reporting rule.
Loopholes
There are a few loopholes to avoid paying taxes every time you swipe your crypto card.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
