colorado flag and bitcoin

Colorado Becomes The First State To Accept Bitcoin As Payment For Taxes

The world of cryptocurrency has been developing at quite an accelerated rate. Several countries all over the globe have had major discussions about using such currencies as legal tender. And recently, Colorado became the first state in the country to officially use Bitcoin for its tax payments. This fascinating new development was announced by the Governor of the state, Jared Polis.[1]

According to the official website of the Department of Revenue of the state, this cryptocurrency is now considered a mode of transaction. The transactions coming through would be facilitated using the ‘PayPal Cryptocurrencies Hub’. The CDR has announced certain rules that every taxpayer has to abide by. One of them states that every cryptocurrency payment will only be available on personal accounts on PayPal. Also, users would have to contain the entire value of an invoice in a single cryptocurrency transaction. 

The intentions of introducing Bitcoin to Colorado had been pretty clear at the beginning of the year. Governor Jared Polis stated, “As a state, we’re on the forefront of digital innovation, whether it’s applying blockchain and shared-ledger technology as a new model for funding, or whether it’s simply being consumer-friendly and making sure that we allow for the kind of innovation that will disrupt legacy business practices and government practices to make them more efficient.” However, this new law will not permit any business account to make any payment through cryptocurrency currently. Also, the users have to pay a service fee of $1 plus 1.83% of the total payment amount.[2] 

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depiction of Bitcoin as a gold coin
Image Credits: Unsplash

Colorado Is All Set To Use Bitcoin As A Mode Of Tax Payments

This move by Colorado to introduce Bitcoin as a legal tender gave it a spot on the top five crypto states on The Ascent. This is definitely quite a big step from the Colorado Digital Token Act, which exempted certain cryptocurrencies from securities regulations. One can hope that the state will follow through on its big plans. This will ensure the conversion of the bitcoin tax payments into dollars pretty quickly- and not left for a rainy day. 

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The adoption of Bitcoin by Colorado should put most investors at ease. For, there has been a constant drop in the prices of crypto- and yet the state has introduced laws for its adoption. Nevertheless, there are a few things one needs to know before one jumps onto the bandwagon. Every crypto transaction generates fees. Sometimes you may have to pay a fee to purchase crypto. Sometimes you might have to pay to convert traditional currency into crypto. Now, while crypto might not be the most expensive way to pay one’s fees, there are other ways that one should try. 

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When one uses Bitcoin to pay taxes, it will always come with certain tax implications attached. In fact, one can count that as selling their crypto. You may also have to pay capital gains tax. And most importantly, using cryptocurrency to pay your taxes could be quite redundant. After all, you wouldn’t break your Fixed Deposit or any stock investment to pay bills that you come across every day. So, why bother using Bitcoin- which you might have hoarded for the long term?

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Sources

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  1. Breaking: Colorado becomes the first state to accept Bitcoin as payment for taxes.” Kitco. Jordan Finneseth. September 20, 2022.
  2. Colorado Becomes First U.S. State to Accept Crypto Tax Payments.” Fool
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