The Internal Revenue Service (IRS) has been more closely monitoring digital currencies, which means that those who are making money as crypto investors will be expected to declare any profits. Additionally, it will now be possible for tax filers to receive their tax returns in cryptocurrency.
Earlier this month, Coinbase—one of the largest cryptocurrency exchange platforms—and TurboTax announced a partnership that would allow users of the tax preparation software to have their tax return converted into one of more than 100 different cryptocurrencies, including bitcoin and ethereum.
"Now, Coinbase customers can get tax refunds automatically deposited into Coinbase as USD, where it can be immediately converted into crypto, when they file with TurboTax," the Coinbase blog explained. "Customers will receive their full refund and can choose to save, invest, or spend it."
According to CNBC, after filing your taxes with the IRS, it will take an estimated three weeks to get the return. It would be deposited directly into your Coinbase account—much like any other direct deposit—and you will be able to convert your USD into the crypto of your choosing.
As MarketWatch.com also reported, the timing of this decision by the IRS is notable because investment experts are now urging extra caution with volatile investments, and many believe that bitcoin and ethereum may not rebound from recent declines.
CNBC also warned that in the last few months alone, the prices for those virtual currencies have fallen approximately 50 percent from their all-time highs. In addition, crypto theft remains a serious issue.
"Roughly $14 billion in cryptocurrency was stolen last year, and unlike other financial products like credit cards, there aren't many safeguards in place for crypto owners," CNBC reported. "And while Coinbase is one of the more reputable cryptocurrency exchanges available, they aren't immune to foul play. Last year, it sent out an email stating 6,000 users had crypto stolen from their digital wallets. So by owning crypto, there is a risk you take on of having it stolen from you."
Financial advisers have also urged tax filers to proceed with caution when it comes to receiving a refund via crypto. "Crypto is very speculative so someone who needs that money or cannot afford to lose it should not be putting their tax refund there," said Lauren Gadkowski Lindsay of Beacon Financial Planning.
For those who see the refund as akin to "found money"—which it is not—and may not need it immediately for bills or other expenses, there are plenty of safer ways to use that tax refund as an investment. A refund could be used to directly fund the purchase of U.S. savings bonds, known as I-Bonds, or the money could be received as a direct deposit and used to buy an array of stocks, bonds, and investment assets.
Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.