Great news for crypto investors who pay taxes: TurboTax is letting you deposit your tax return directly into Coinbase this tax season. From there, you’ll be able to use the crypto exchange platform to convert the funds immediately into one of more than 100 cryptocurrencies.
Here’s how to deposit your tax refund into Coinbase, and some expert advice on whether you should.
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How to convert your tax refund into cryptocurrency
When you file a tax return with TurboTax, you can normally choose one of two ways to get your refund: check or direct deposit to your bank. This year you also have the option making a direct deposit to your Coinbase account. (Note: This only works if you are getting a refund. If you owe money, you can’t pay with a Coinbase account.)
To get the Coinbase option for your return, you have to start from this landing page. If you haven’t already set up a direct deposit account on Coinbase, you’ll be given directions on how to do that. Once you have a direct deposit account and input the routing and account info, your refund will be immediately converted into your preferred crypto asset.
Should you convert your tax refund into cryptocurrency?
As we said in September when Coinbase began allowing users to direct deposit their paychecks, this can be a convenient option if you’re already a regular crypto investor. So if you already planned to invest your tax return into cryptocurrency, now there are fewer steps to take to do so.
And if you view your refund as “free money” (it’s not — it’s the government returning the excess income tax you paid over the past year), maybe you won’t feel as bad about risking it on something as volatile as cryptocurrency. But while volatile investments can have big upside, they can also have big downside. Unless you're comfortable with potentially losing a bunch of money, crypto investing probably isn't a great idea.
“If the stock market gives you palpitations then the crypto market is not for you,” says Leibel Sternbach, a financial advisor and author of “Living With Financial Anxiety.” “Crypto prices swing wildly and are prone to manipulation and speculation.”
One stray tweet from Elon Musk can swing the crypto market, Sternbach says, which is great if you have the fortitude to bet on which way it will swing, but not so much if you want a stable, long-term investment.  Future regulation could also harm crypto’s value; President Biden has vowed to issue an executive order regulating cryptocurrency. 
Turning your cash into crypto can come with its own tax implications, says Sternbach, who is also an enrolled agent (an IRS-recognized tax expert).
“Unlike cash, the IRS sees purchases with crypto as investment sales, which are reportable and taxable,” Sternbach says.
That could mean extra work when the next tax season comes around, though you can avoid it as long as you don’t sell the crypto.
“There are only tax implications when you sell the assets,” says Andrew Schmitt, a spokesman for Coinbase. You can also choose not to convert your money into cryptocurrency, he adds. “Users have complete control.”
Sternbach, a crypto enthusiast, is a fan of this new tax refund option (though he advised that getting a big refund isn’t always a good thing).
“I think it will help make crypto mainstream, which will bring legitimacy, scrutiny, and much-needed government oversight,” Sternbach says.
If you do deposit your refund into Coinbase, remember to make sure your crypto investment is only a small part of your portfolio, or at most, an amount you’re willing to lose, given how risky crypto investments are.
“As with all investments, do your due diligence,” Sternbach says. “Make sure you understand what you are investing in, understand the upside, downsides, risks, and ensure that you are making smart financial decisions for yourself and your loved ones.”
Image: Chesnot / Getty Images