What Colorado crypto owners should keep in mind when paying taxes using digital currencies
Crypto owners must bear in mind that paying off taxes with crypto will trigger another taxable event for the following tax year.
Fri, 07 Oct 2022, 09:31 am UTC
As of September 1, Colorado is accepting crypto as payment for any taxes due to the state. With the introduction of this crypto payment option, Colorado Governor Jared Polis, who has demonstrated his dedication to establishing the state as pro-cryptocurrency, was finally able to fulfill a promise he made in the year.
Colorado isn’t the only state in the U.S. that introduced a crypto payment option for tax payments. Arizona, Wyoming, and Utah have all previously introduced bills to accept tax payments in the form of digital currencies to differing degrees, according to Cointelegraph.
States that support cryptocurrency and blockchain technologies stand to greatly benefit economically. Smart governments are starting to promote their region as the upcoming hub of the cryptocurrency economy in an effort to draw new companies and clever, wealthy, and youthful crypto enthusiasts.
However, taxpayers should be made aware of the potential financial repercussions of making payments using cryptocurrencies, as doing so is a taxable event that could result in an increase in the amount of taxes owed.
Hopefully, more states are set to follow Colorado's example but they should also take note of the shortcomings of Colorado's initiative. States must recognize the tax dilemma that arises from accepting cryptocurrency as payment and consider the solution of adopting stablecoins as a form of payment.
The main argument against states accepting cryptocurrency as payment for state taxes is that doing so is taxable disposal for individuals since making the payment results in its own income event.
Since the IRS views cryptocurrencies as property, if taxpayers use them to pay state taxes and their price has increased over time, there will be a taxable income in the amount of the price increase since the crypto was first purchased. Thus, crypto owners must bear in mind that paying off taxes with crypto will trigger another taxable event for the following tax year.
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