[darkengine]

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?

[chanfest22]

Co-Founder of CoinTracker (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-fina...

[notyourwork]

> 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]

Same goes for the Robinhood integration, sadly.

[chanfest22]

It's one of several options made available to users on how to file their taxes: https://help.cointracker.io/en/articles/1920680-after-purcha...

[fourstar]

Upset at a corporation who fixes inefficiencies in the free market? What? How does what TurboTax do prevent the government from changing anything?

[nichos]

It's pretty well known that they lobby congress to keep the tax laws complicated to ensure their business. The solution is less government and simpler taxes.

[rwiggum]

This is how: https://www.propublica.org/article/inside-turbotax-20-year-f...

[fourstar]

> 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.

[Thorrez]

>If the system is vulnerable to exploitation, that’s not the fault of Intuit.

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.

[notyourwork]

TurboTax has many dark paths and misleading sales pitches to bring people in with impression of free and prevent checkout without collecting money. Aside from that, their lobbying has created the mess that essentially requires 3rd party support to file your taxes.

It's not a game and a matter of hate, it's just a fact that filing your taxes is complicated because of Intuit.

[arcticbull]

Are they looking at solving the fact that spending appreciated "assets" will lead to a tax bill at the end of the year? Do they plan to sell extra to cover the gains, and then withhold them? If they don't and crypto collapses again, people might actually be out money at the end of the year for using their card right?

[jkhdigital]

Can you handle complex straddle positions across multiple exchanges and derivative instruments? Let me guess...

[chanfest22]

We support positions across exchanges, wallets, DeFi, and derivatives. Depending on your straddle situation, reach out and we'll find a solution for you. https://www.cointracker.io/contact-us

[raullen]

Why cointracker starts with Coinbase/Google account, rather than an BTC/ETH addr?

[chanfest22]

Most crypto users have custodial assets (e.g. those held on an exchange) which don't have a unique address. Therefore we need some identity layer to tie together a specific users transactions for tax purposes. That can be Google sign-in, Coinbase sign-in, throwaway email + password

[rwiggum]

With proper BTC usage, you never reuse an address. It's perfect forward secrecy.

[undefinednull]

and we call it as "decentralized"

[MithrilTuxedo]

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]

How does it handle cost basis? Does it let you select individual lots to be sold per transaction?

[qes]

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]

Huh. I wonder how they handle proof of ownership with self custody.

[cbhl]

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.)

[Klonoar]

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]

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

[ericmay]

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.

[BitwiseFool]

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]

Dollar-tethered cryptos are then a better deal for a "crypto card", I guess?

[hansvm]

They'd potentially reduce the tax burden but still require a ton of paperwork.

[dmurray]

> 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.

[BitwiseFool]

The IRS issues guidance on crypto currency, here's an example from 2014: https://www.irs.gov/pub/irs-drop/n-14-21.pdf

"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.

[ska]

The IRS doesn't make the tax law, true, but they are behaving consistently with the relevant laws; putting "currency" in the name of something doesn't define it as a currency.

Legislative action could of course change this, but until then you are probably tilting at windmills.

[runako]

> rather than a currency

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:

http://www.law.cornell.edu/uscode/text/26/988

[JumpCrisscross]

> The IRS doesn't make the 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...

[javert]

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.

[andrewfong]

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]

It's a debit card, so there is no balance to pay off.

[jkhdigital]

That sounds more like a credit card secured by your crypto assets...

which might be the next product from Coinbase

[awinder]

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.

[vmception]

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.

[m3kw9]

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]

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

[xur17]

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

[bobyfyfy]

Is that a problem?

[BitwiseFool]

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]

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]

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]

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]

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.

[nostrademons]

They take the interpretation of tax laws and your personal situation that is most favorable to the IRS, though. This can amount to tens of thousands of dollars that you pay them needlessly.

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.

[dmitrygr]

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.

[jkhdigital]

This is actually reassuring, even if from a rando internet commenter. I have tens of thousands of crypto trades from the last few years, most of which are legs of complicated straddle positions. Spent dozens of hours trying to get the data straight for reporting but in the end I just put a single line item on my Form 6781 which captured the correct PnL (which was a very, very modest number). If I do get audited I can produce all of the trade data, so I’m thinking I’ll be okay.

[icedchai]

For a few thousand bucks, they're not going to make an example of you. It's not worth it to them. If you're cashing in 6 figures to buy luxury cars, they might, I agree. You go after the big fish, not the small fries.

[whoisjohnkid]

It’s actually the other way around surprisingly. The big fish tend to have resources to fight the IRS in court; which becomes expensive for the IRS. Hence the IRS goes after the not so rich since they rarely put up a fight.

e.g. https://www.propublica.org/article/irs-sorry-but-its-just-ea...

[eachro]

It sounds like a big hassle for you or your accountant.

[apta]

Yes. They're hampering the adoption of cryptocurrencies.