If you’re a cryptocurrency aficionado, you love to use crypto to pay for well, just about everything. So it can be galling to think that you can’t use it to pay your taxes—especially when you consider that you might owe taxes on cryptocurrency capital gains. (Find out more about that here.)
But that might be changing, if other states follow the lead of the state of Ohio. Here’s what’s happening in the nascent world of using crypto for tax payments.
The State of Ohio on the Vanguard
The then-Treasurer of the state of Ohio, Josh Mandel, announced in November 2018 that the businesses in the state would be able to settle their tax bills online at Ohiocrypto.com with Bitcoin, using cryptocurrency payment service provider BitPay.
(Before you become too gleeful, note that this is for 23 types of business taxes only—private individuals can’t yet use the system.)
A cryptocurrency enthusiast himself, Mandel outlined additional plans to Bitcoin Magazine, saying “In Phase 2 of Ohiocrypto.com, we hope to expand the initiative to allow individuals to pay their taxes in cryptocurrency and expand beyond Bitcoin to include other cryptocurrencies.”
Although he is no longer Treasurer as of Jan. 1, 2019, Mandel says he has “discussed the cryptocurrency plan” with his successor, Robert Sprague. As Sprague is carrying on with the current Ohiocrypto.com plan, presumably he will continue investigating the benefits of adding more types of functionality for private tax payers.
And of course, expansion will also depend on how smoothly the program goes. So far so good; while it’s unknown how many businesses will take advantage of the new system, an auto dealer in Ohio has already used it. And a national company has gotten in on the game: Longtime cryptocurrency pioneer Patrick Byrne, CEO of ecommerce site Overstock, has announced that the company will pay part of its Ohio state business tax bill using the new portal.
Advantages of Tax Payments in Crypto
Beyond the goal of showing support for crypto as an everyday spending option, paying taxes in crypto can offer some financial rewards, Neeraj Agrawal, director of communications at Washington, D.C.-based cryptocurrency policy think tank Coin Center, tells Marketwatch.
“This would be a good idea for a business that already has a lot of Bitcoin as it saves them the step of converting their Bitcoin to dollars before paying taxes,” he said. “Now they will just be converted right at the moment of payment.”
And it will also be beneficial if and when the option became available in the private sector.
“Using Bitcoin to pay taxes may be attractive to people who are currently at a loss from their Bitcoin entry price if they want to reduce their Bitcoin holdings and pay taxes around the same time,” said Farrukh Shaikh, chief financial officer and cofounder of Gath3r, a cryptocurrency mining service, in an interview with Marketwatch. (Of course, on the flip side, you would be obligated to pay taxes on the realized gain if the current crypto price is higher than the price you paid—and crypto taxes must be taken seriously.)
Additionally, if future payment systems follow Ohio’s lead of only charging a flat 1 percent fee, that would make it a better financial choice than using a credit card, which comes with a “convenience fee” of between 1.87 and 2 percent of the total payment.
Other Movement Towards Paying Taxes in Crypto
While Ohio is the first state to accept tax payments in crypto, other states have been mulling the prospect.
New Hampshire legislators considered a bill in 2016 that was ultimately defeated. The Arizona Senate proposed a bill to accept cryptocurrency payments for taxes, although the ultimate bill dropped references to cryptocurrencies. And additional states, including Georgia and Illinois, also proposed bills that were considered but not accepted during their 2018 sessions.
While the notion of paying taxes in crypto on its face seems logical, states might be hesitating due to the fluctuating value of cryptocurrencies in the 24-hour period that passes between when the payment is received, and the time that the tax agency posts it. For example, if a taxpayer sends in $5,000 worth of crypto to make a tax payment, and it rises in value to $5,500 in the ensuing 24 hours, the tax agency would need to rebate the taxpayer the difference. Or, should the opposite happen, the taxpayer would be on the hook for the difference.
“Until the state can pay wages and its other bills in cryptocurrency, accepting crypto payments for state taxes will always require conversion to dollars. The same goes for federal tax payments,” writes Paul Ausick on the website 24/7WallStreet.
However, with bold new steps such as that taken by the state of Ohio—and the beginning efforts that have been undertaken by multiple other states—additional pilot programs in using crypto for tax payments are likely just a matter of time.