The states embracing blockchain technology and cryptocurrencies may make significant economic gains by becoming hubs of the crypto economy. Those creating their wealth in Bitcoin may refuse to use it as their primary method to pay taxes to avoid additional charges.
Since September 1st, Colorado has accepted payments with cryptocurrencies for the taxes of its citizens. Governor Jared Polis promised earlier this year to establish it as a pro-cryptocurrency state.
Other US states besides Colorado have sought to encourage cryptocurrency investments within their borders. Lawmakers in Arizona, Wyoming, and Utah have introduced various bills to accept tax payments with cryptocurrencies.
The states embracing blockchain technology and cryptocurrencies may eventually make significant economic gains. Experienced governments position themselves as the next hub of the crypto economy, hoping to attract intelligent young wealthy voters and new businesses.
However, taxpayers should know the tax consequences of making payments with cryptocurrencies in their states. That payment is a taxable event with the potential to increase the amount of tax payable.
The Payment with Cryptocurrencies May Cause Problems in Some States
The most serious problem with tax payments with cryptocurrencies is that they are a taxable provision for individuals.
According to the Internal Revenue Service (IRS), cryptocurrencies are property, which means their value may increase over time. Therefore, citizens have taxable income equal to how much the price has risen since they acquired them.
People must know that paying taxes with cryptocurrencies will trigger another taxable event for the next tax year. For example, they can pay their 2022 taxes with the equivalent in Bitcoin (BTC) before the expiration date. However, they will have to pay taxes on their earnings for the tax year 2023 only for having opted for a valued cryptocurrency.
Most of those creating their wealth in cryptocurrencies may choose to pay taxes with this method. However, they may refuse to use crypto assets to pay taxes to avoid additional charges.
States Can Make Tax Payments with Cryptocurrencies Possible
Concerning tax payment, cryptocurrency tokens pegged to the price of the US dollar eliminate conversion fees. Despite the lack of reports on the disposition of those stablecoins on their tax return, their value does not fluctuate substantially.
Converting Bitcoin and other cryptocurrencies into a stablecoin is a taxable transaction. However, crypto natives may hold a more significant percentage of stablecoins in their portfolio as the crypto ecosystem matures.
The use of stablecoins unrelated to taxes would not prevent governments from accepting cryptocurrencies, a program that may gain traction. Many people may see crypto assets as the best way to comply with that obligatory charge.
Those states may implement the acceptance of cryptocurrencies, especially stablecoins, for tax payment. If they succeeded in doing it correctly, they would have the opportunity to become hubs for cryptocurrency trading. At the same time, they would earn additional income from that growing economic sector.
Bitcoin is trading at around USD 19,993 and has accumulated a 2.2% gain over the last week. While its daily trading volume is above USD 26.51 billion, its market capitalization is about USD 383.30 billion, according to CoinGecko.
By Alexander Salazar
