A wise man – Benjamin Franklin, most probably – once said that there are two certainties in life; death and taxes. The Grim Reaper isn’t in the market for accepting cryptocurrencies to pay the ferryman just yet, but the taxman is increasingly happy to take payment in that form.
On 8th February 2018, the state of Arizona passed a tax bill, co-sponsored by Jeff Weninger, the Republican Representative. This will enable people to pay not just their taxes, but any interest – or penalties – using a variety of cryptocurrencies, including Litecoin and Bitcoin. Weninger told Fox News that he hoped it would “send a signal to everyone in the United States…that Arizona is going to be the place to be for blockchain and digital currency technology”. And Georgia listened.
Georgia’s bill followed on 21st February, also moving to accept cryptocurrencies in payment for taxes owed, and for licenses. The wording of Senate Bill 464 is interesting, mentioning “any cryptocurrency, including but not limited to Bitcoin, that uses an electronic peer-to-peer system.” That would imply that the Bill would cover any future currencies that appear, and that the underlying faith is in blockchain technology. The state commissioner would have a very limited time – 24 hours – to turn the cryptocurrency into dollars, no doubt due to its volatile nature.
Arizona’s bill has already passed is third reading, so it’s a little ahead of Georgia in making the bill a reality. Additionally, the tax bills follow on from Wyoming’s legislation – bill SF0111 – adding cryptocurrencies to a list of ‘intangible items’ which should be exempted from property taxes. All these changes could hit as soon as 2020 – practically the blinking of an eye, if you consider how slowly officialdom can move when faced with the new.
But what does a tax expert think? Robert Wood is an authority on tax law, and thinks that the ability to make state-related payments in cryptocurrencies could end up costing consumers more if the Wyoming bill isn’t adopted everywhere. The current IRS position is that cryptocurrency isn’t a currency at all, but property.
If you had a tax bill of $10,000, you could simply pay it in dollars. That would be fine, and the tax man would shake your hand and say ‘see you next year’. Or, you could choose to pay your taxes in cryptocurrency, and that’s where the trouble – potentially – starts. You can’t have failed to notice that Bitcoin has had – mostly – a very good year and has risen in value considerably. If you bought cryptocurrency to the value of $2,000 a year ago, and it’s worth $10,000 when you pay your tax bill with it, that represents a gain. And the taxman wants his cut.
You’d have to be a tax expert yourself to sort out the headache of who owes what when, so unless the Wyoming bill is passed as law in other states, US taxpayers had better follow the tried and tested advice for everyone with all tax matters – hold onto your paperwork.