Hit and Miss: Buying items with Cryptocurrency

Cryptocurrency has been consistently evolving. Now days, you can use cryptocurrency as a form of payment to buy your next pair of shoes. However, cryptocurrency is not treated the same as normal currency. Cryptocurrency is an investment asset. You have to consider capital gains when cryptocurrency is used to purchase an item. This means there is a reportable taxable event every time cryptocurrency is used to make a purchase. What a pain!

Making matters worse, virtual currency exchanges and virtual currency wallets may not keep track of your tax reporting requirements. However, there are apps out there to help with record keeping.

How does this work? Say if you purchase 500 units of a coin at $1.00 per unit. You now have $500 worth of a coin. The coin does well over time and your 500 units are now worth $750. This means each unit is worth 750 / 500 = $1.50 per unit. You decide to purchase $150 pair of shoes with the coin. You will need to use 100 units at $1.50 per unit to purchase the shoes for $150. This is a reportable tax transaction. You will need to keep track of the gain on the sale. In this example, the gain is 100 units times the difference of $1.50 and $1.00, 100 * (1.50 – 1.00) which equals $50.00 tax gain. Phew! This is only one transaction. Now image you have a coin tied to a credit card and you use it for every day costs. You would need to do this type of calculation each time the credit card is use. This is starting to get complicated. Is it worth the headache? Especially, when you have to do this for every purchase you make. Maybe if you strike it rich with that unknown coin that grows 5,000%!


Opt-in or Opt-out of the new Child Tax Credit

Starting on July 15th parents will start to benefit from the new Child Tax Credit. According, to the IRS those who are eligible will receive a letter in the mail that explains the payment of the advanced child tax credit. Eligibility will be based on your adjusted gross income (AGI) on your filed 2020 or 2019 return.

However, there are two options on how to receive these payments. You can either get half of the payment throughout the year in monthly installments and then the other half on your 2021 tax return (opt-in). The other option is to opt-out from getting advance payment for child tax credits and receive the whole payment on your 2021 tax return. Now, that you have these options you may be wondering as to what you should do.

We recommend consulting with your tax professional to figure out what is the best option for you. This way you can best evaluate what will work for you and your family.

Time is ticking because this decision needs to be made by July 1st.

If you have not filed your 2020 or 2019 return, please work with your tax preparer on filing them so you can qualify for this credit.

To see the eligibility requirements please go to the IRS website to learn more about it.