Accountants and financial advisors have told CNBC that people who use cryptocurrency-based payment cards could unknowingly be racking up huge tax bills due to the way cryptocurrencies are taxed. When a crypto-asset is disposed of (sold for fiat, sold for another cryptocurrency, used to buy goods and services etc.), you may need to record the asset’s value compared to the national currency compared to when you acquired it and record any gains or losses.
Each country will have different rules around capital gains taxes on crypto-assets but working out how much you have to pay can be incredibly difficult and this problem is only compounded when using crypto-based debit or credit cards where you are making lots of payments – each of which is a taxable event.
Explaining the situation to CNBC, Shivani Jain, a certified public accountant at the tax and advisory firm Sax LLP, said:
“Anytime you receive, sell or exchange cryptocurrency, income would need to be recognized. When you make a payment using a Coinbase card, you are deemed to have sold the cryptocurrency, which results in a tax event.”
These taxes on cryptocurrencies are nothing new, in some countries such as the United Kingdom, the body in charge of taxes has advised the public on how to pay tax on their crypto-assets. Nevertheless, there will still be plenty of people who are unaware of their tax obligations surrounding cryptocurrencies and for those people, it’d definitely be wise to get familiar with the rules as it's your responsibility to do so.
The issue should also make lawmakers question whether the current tax set-up is the best it can be due to the fluid nature of crypto-assets and their role as digital money. It’s no secret that this new technology can be a bit confusing so better rules for taxing cryptocurrency may be a way off.