When it comes to volatility, cryptocurrencies are usually the first thing that comes to mind. In most cases, a purchase is held until the market provides sufficient returns. That could unironically take years. Paying taxes via bitcoin however, seems to be an alternative that more and more people are beginning to consider.
As far as most American states are concerned, selling bitcoin can trigger tax losses that can be used in the following year as well. Ohio is currently the only state which allows people to pay their state taxes via bitcoin. Currently, payments are accepted only in bitcoin, but that will inevitably change in the near future.
New Hampshire, Utah, Georgia and Arizona all made efforts to allow people to pay taxes via bitcoin. Unfortunately, the propositions were declined in every state. In Ohio, there are no transaction feels during the 3-month introductory period. Afterwards, transaction fees jump to 1%.
Paying taxes via bitcoin is not for everyone
Keep in mind that a person owing taxes in Ohio is not generally guaranteed to qualify. This concept is basically just for businesses operating within Ohio. Business owners in Ohio who receive a tax bill, can register and have their payments processed by BitPay. Before any deposit is made into an official state account, all payments are converted into USD.
Volatility is a big issue when it comes to paying taxes in bitcoin. If you owe $10K and 1 BTC is currently worth $10K, you unfortunately, are not free with just that simple transaction.
This transfer of crypto to the state is considered a sale, which means more taxes for the year that the sale has been made. If you however, purchased 1 BTC in the beginning of the year for $1K and it’s worth $10K at the end of the year, you made a $9K gain.
If you however, decide to tax in crypto, you are still subject to tax. If you bought the BTC for $7K and used it for taxes when it was worth $6 it might just trigger a loss that you can use.
Payments that crypto made to independent contractors are also taxable to both sides. The reporting mechanics are also a huge issue for a lot of people. Basically, you need to remember that every time you transfer crypto, you might trigger a loss or gain.
If you get paid in crypto, make sure you include its fair market value as income. The fair market value should be reported on the received date in USD. Miners should also follow the same rules.
In short, paying taxes in crypto can be a real headache. In the near future, the system will definitely be simplified. Until then however, people living in the United States are in for a wild ride.
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