Do not use crypto with a Coinbase debit card

OBSERVATIONS FROM FINTECH SNARK TANK

Last year, the cryptocurrency exchange Coinbase announced that Coinbase debit cardholders could make retail purchases with Bitcoin, Ethereum or Dogecoin holdings by connecting the card to Apple Pay and Google Pay.

The exchange said users could earn up to 4% in crypto-related rewards – including 1% back in Bitcoin or 4% back in Stellar Lumens – by using the Coinbase debit card.

Crypto’s use for retail purchases is growing

A study from Pymnts, The American cryptocurrency consumer: Use of cryptocurrency when buying online and in storefound that 30% of crypto owners bought something online using a cryptocurrency, and 21% did so in the store, in the month before the survey.

Pymnts noted that the large percentage of crypto holders who use in-store crypto may “suggest that the use of Mastercard and Visa-branded crypto debit and prepaid cards, along with payment companies such as CashApp and PayPal, is growing.”

However, the survey says something else:

“Among online shoppers using crypto, 70% used digital wallets while 54% used debit or prepaid cards. For in-store purchases, 74% used digital wallets while 66% used debit or prepaid cards.”

Regardless of how crypto owners made their crypto-based retail purchases, the study concluded that:

“The interest in using cryptocurrency to pay for purchases is a reality. There is an untapped potential for crypto owners to use it to make purchases instead of using more traditional payment options. “

Still crazy after all these charges

Okay, so consumers wishes to trade retail using their crypto inventory. But doing so with the Coinbase debit card presents problems and concerns that many will find difficult to navigate.

Last year, I noticed that you have to be crazy to make a retail purchase with bitcoin, ethereum, dogecoin – or any cryptocurrency – with a Coinbase debit card:

“You need to consider a number of factors, including taxes, transaction fees, rewards, refunds, and accepted merchant categories.”

The good news for potential Coinbase debit card users is that the company has made some improvements to the card regarding:

• Transaction fees. Coinbase eliminated the transaction fee of 2.49%.
• Rewards. The crypto exchange renewed its rewards program, giving cardholders an opportunity to earn up to 4% back on purchases that will go into a rotating set of cryptocurrencies such as Bitcoin or The Graph (GRT). If a customer does not select a reward when the next rotation is launched, they will automatically receive the reward with the highest crypto-return rate.
• Financing. Coinbase offers customers the opportunity to have some or all of their payslips deposited in Coinbase without fees on direct deposits, which means that they can receive their payslip in crypto and use it without fees.

The changes in the program are a good step forward, but they do not—and probably never could– Grab a big pitfall to pay with crypto: The tax consequences.

The disadvantage of paying with crypto

The tax implications of paying with cryptocurrencies through a Coinbase debit card are (and should be) a deal-killer for many consumers. According to Coinbase’s website:

The IRS classifies cryptocurrency as “property” for tax purposes. This means that each time you use your card and sell cryptocurrency, you will be sold property in a taxable transaction. You will be required to report gains or losses using the card on your tax return. »

It’s easy to imagine that some users will say “I know there are tax implications – I’ll deal with them.” It may not be that simple.

Tax Attorney Guinevere Moore warns crypto investors of 10 crypto-tax errors that must be avoided, including: 1) Incorrect reporting of cryptocurrencies received from droplets, forks and splits; 2) Use of incorrect form to report cryptocurrency transactions; and 3) Failure to report crypto-to-crypto transactions.

In addition, the tax implications of getting paid in crypto – to load money on a Coinbase debit card – are complicated. According to CoinTracking:

“If your salary is in crypto, the IRS assesses the real market value of crypto in US dollars on the date of receipt of federal income tax and payroll tax. is an independent business tax of 15.3% in the United States. “

Additional negative aspects of paying with your Coinbase debit card include:

• Refunds. If you return a purchased item, Coinbase will put the refunded amount in the USD wallet in your Coinbase account. This means that if you want to reinvest the money in Bitcoin or another cryptocurrency, you pay a fee for that transaction.
• Selection of sellers. Coinbase states that you can make cryptocurrencies anywhere that accepts Visa. Not completely. Crypto-buying is banned in a long list of seller categories, including betting / casino gambling, internet gambling, online gambling or gambling on dog and horse races — wIt is ironic considering that crypto investing is a gambling activity in itself.

Bottom line: Coinbase has made it more convenient to use its debit card to use crypto to do retail, but it’s probably not worth the effort.

Banker watch out?

Whether intentionally or not, current tax laws discourage the use of cryptocurrencies to make daily retail purchases. This is good news for banks that issue debit and credit cards and earn brokerage fees from the transactions on these cards.

Changes in the cryptocurrency tax laws – and loosened transaction deterrents such as dollar limits and seller restrictions – can have a negative impact on banks’ fee income.

I would not be surprised if the banking lobby works to keep the cryptocurrency tax law in place. You know the accountants are.