In this guide, we’ll break down the tax implications of crypto debit cards and credit cards and share some steps to help make sure that you’re accurately reporting your taxes!
Are transactions with crypto debit cards and credit cards taxable?
Yes. Like the taxes associated with other crypto transactions, crypto debit card transactions may be subject to capital gains and income tax.
How are crypto debit cards taxed?
Typically, cryptocurrency debit cards convert cryptocurrency to fiat at the point of sale. This is considered a disposal of cryptocurrency that is subject to capital gains tax.
Let’s look at an example to understand how an individual purchase might be taxed.
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To accurately report your taxes, you’ll need to keep records of each one of these disposal events.
Some debit cards allow customers to transfer their cryptocurrency to fiat on a lump sum basis rather than on a transaction-by-transaction basis. In this case, the conversion from crypto to fiat is still treated as a taxable event. However, there’s no need to report each individual purchase on your tax return.
What about purchases made with stablecoins?
Many crypto debit cards support stablecoin purchases. It’s important to remember that stablecoins are treated the same as any other cryptocurrency for tax purposes and will still be subject to capital gains tax.
However, it’s likely that any capital gain that you incur will be close to zero.
Are there any tax advantages to using a crypto debit card?
Believe it or not, using your cryptocurrency card can actually reduce your tax bill for the year — provided that the price of your tokens has fallen since you originally received it.
If the fair market value of your cryptocurrency is lower than it was at the time you purchased it, you can claim a capital loss on your taxes. This can offset your capital gains for the year and up to $3,000 of ordinary income.
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For more information, check out our guide to tax loss harvesting.
Are debit card rewards taxable?
While the IRS has not provided specific guidance on crypto debit cards, it’s reasonable to assume that cashback rewards for spending will not be considered taxable — similar to traditional debit cards.
However, rewards that are given simply for opening a new account will likely be considered income.
How are crypto credit cards taxed?
Crypto credit cards are taxed differently than debit cards. When you make a purchase, you are simply making a purchase on credit rather than converting your existing cryptocurrency to fiat.
This means that crypto credit transactions are not subject to capital gains tax.
Are credit card rewards taxable?
Based on how the IRS has treated credit card rewards in the past, it’s reasonable to assume that rewards that are given simply for opening a new account with no spending requirements will be considered income.
However, rewards with spending requirements will most likely be considered non-taxable rebates.
Do I pay taxes when I dispose of my debit/credit card rewards?
Disposing of either your debit or credit card rewards will be considered a taxable event. If you sell the rewards you receive, trade them for other cryptocurrencies, or use them to buy goods or services, you may incur capital gains depending on how the price of your rewards has fluctuated since you originally received them.
Stay on top of your debit card transactions
Looking for an easy way to report taxes on your debit card and other crypto transactions?
Cryptocurrency tax software like CoinLedger can help. The platform integrates with card providers like Coinbase and Crypto.com to automatically import your transactions. Once you have your data synchronized, you’ll be able to generate a complete crypto tax report in minutes.
Get started with a free preview report today. There’s no need to enter your credit card information until you’re 100% sure the information you have is accurate.
Frequently asked questions
Do you pay taxes on crypto payments?
Are crypto debit cards traceable?
Do crypto debit cards report to the IRS?
Do you pay taxes on a Coinbase debit card?
I'm an expert in cryptocurrency taxation and transactions, with a comprehensive understanding of the complex implications associated with crypto debit and credit cards. My expertise is grounded in practical knowledge, keeping abreast of the latest developments and regulations in the cryptocurrency space.
Crypto Debit Cards: Tax Implications
Transactions made with crypto debit cards are indeed taxable, subject to both capital gains and income tax, similar to other crypto transactions. When a cryptocurrency is converted to fiat at the point of sale, it is considered a disposal event, triggering capital gains tax. It's crucial to maintain accurate records for each transaction to ensure proper tax reporting.
In cases where some debit cards allow lump-sum transfers of cryptocurrency to fiat, the conversion is still treated as a taxable event. However, individual purchases don't need to be reported separately on your tax return.
Even when stablecoins are used for purchases, they are treated like any other cryptocurrency for tax purposes and are subject to capital gains tax. Though capital gains with stablecoins are likely to be minimal.
Interestingly, using a crypto debit card can potentially reduce your tax liability if the value of your tokens has fallen since acquisition. A capital loss can be claimed on your taxes, offsetting capital gains for the year and up to $3,000 of ordinary income.
As for debit card rewards, while there's no specific IRS guidance on crypto debit cards, cashback rewards for spending are assumed not to be taxable, similar to traditional debit cards. However, rewards for merely opening an account may be considered taxable income.
Crypto Credit Cards: Tax Implications
Crypto credit cards operate differently. Purchases made with crypto credit cards are essentially on credit, not involving the conversion of existing cryptocurrency to fiat. As a result, crypto credit transactions are not subject to capital gains tax.
Credit card rewards, especially those given for opening an account without spending requirements, are likely considered income. However, rewards tied to spending requirements are likely to be treated as non-taxable rebates.
Disposal of Debit/Credit Card Rewards: Tax Considerations
Disposing of debit or credit card rewards is considered a taxable event. Selling, trading, or using rewards to purchase goods or services may incur capital gains, depending on the price fluctuation since receiving the rewards.
Tools for Tax Reporting
To streamline tax reporting for crypto transactions, including debit card usage, cryptocurrency tax software such as CoinLedger can be instrumental. These platforms integrate with card providers like Coinbase and Crypto.com, automatically importing transactions and facilitating the generation of comprehensive tax reports.
Frequently Asked Questions:
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Taxes on Crypto Payments: Yes, paying for goods and services with cryptocurrency is considered a taxable disposal subject to capital gains tax.
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Traceability of Crypto Debit Cards: Most crypto debit card providers require Know Your Customer (KYC) information, making it likely that transactions can be traced back to the user.
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Reporting to the IRS: Due to KYC requirements, most crypto debit card providers are likely to report to the IRS upon request.
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Taxes on Coinbase Debit Card: When making purchases with a Coinbase debit card, the conversion of cryptocurrency to fiat is a taxable disposal subject to capital gains tax.
