Introduction
The Coinbase debit card offers users a convenient way to spend cryptocurrency directly from their Coinbase accounts while earning up to 4% in crypto rewards on purchases. However, while these rewards may seem attractive, using the Coinbase card comes with tax implications that users must be aware of.
Since every cryptocurrency transaction is considered a disposition of property under U.S. tax law, purchases made with the Coinbase card can trigger capital gains or losses. This article explores the tax reporting requirements and potential liabilities associated with using the Coinbase debit card.
How the Coinbase Debit Card Works
The Coinbase debit card allows users to spend cryptocurrency from their Coinbase account balance just like a regular debit card.
Key Features:
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No annual or sign-up fees.
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Users can select which cryptocurrency to spend.
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Up to 4% in crypto rewards for purchases.
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A 2.49% fee applies when spending crypto (except USD or USDC).
Since spending cryptocurrency is treated as a sale or exchange of property by the IRS, each purchase can create a capital gain or loss, requiring accurate reporting on tax returns.
Are Coinbase Card “Cash-Back” Rewards Taxable?
Coinbase offers crypto rewards on purchases, similar to traditional cash-back programs. The IRS has not issued direct guidance on crypto-based card rewards, but based on past rulings, these rewards are likely considered non-taxable rebates rather than taxable income.
Why Are These Rewards Considered Non-Taxable?
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Credit card and debit card rebates are typically treated as purchase discounts, not income.
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Airline miles, points, and cash-back rewards from traditional credit cards have been ruled non-taxable in most cases.
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The IRS may take a different stance if users exploit the rewards system to generate tax-free gains.
While these rewards are generally non-taxable, they must still be reported correctly on tax returns to avoid IRS scrutiny.
Are Purchases Made with the Coinbase Debit Card Taxable?
Yes, most purchases made using the Coinbase debit card are taxable transactions.
When a user makes a purchase, Coinbase converts crypto to USD, triggering a taxable disposition of the cryptocurrency. This means that:
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A capital gain or loss is incurred on every transaction, based on the difference between the crypto’s acquisition cost and its value at the time of spending.
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These transactions must be reported on Form 8949 and Schedule D.
Are Stablecoin Purchases Taxable?
Even if purchases are made using stablecoins (such as USDC), tax implications still apply.
Although stablecoins are designed to maintain a fixed value, their price can fluctuate slightly. This means:
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If there is any price movement between the time of acquisition and the time of purchase, a capital gain or loss occurs.
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If the stablecoin was held at the exact same value, there may be no gain or loss, but it still needs to be reported accurately.
Failure to report stablecoin transactions properly could lead to incorrect capital gains reporting on Form 8949.
Tax Implications of Spending Staking or Mined Crypto
Using mined cryptocurrency or staking rewards for purchases through the Coinbase card results in two taxable events:
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Earning the Crypto
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Mined or staked crypto is taxed as ordinary income at the fair market value at the time of receipt.
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Spending the Crypto
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When these assets are later spent, the transaction is taxed as a capital gain or loss, based on how much the crypto appreciated or depreciated since it was earned.
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Since these transactions are treated as both income and capital gains events, tracking them accurately is essential to avoid IRS penalties.
Conclusion
Using the Coinbase debit card can be convenient, but it comes with complex tax implications. Each purchase made with cryptocurrency is considered a taxable event, requiring users to track and report their transactions correctly.
Block3 Finance provides expert guidance to help crypto users manage tax reporting, minimize liabilities, and ensure IRS compliance.
If you have any questions or require further assistance, our team at Block3 Finance can help you.
Please contact us by email at inquiry@block3finance.com or by phone at 1-877-804-1888 to schedule a FREE initial consultation appointment.
You may also visit our website (www.block3finance.com) to learn more about the range of crypto services we offer to startups, DAOs, and established businesses.