Are you a crypto investor looking for another way to give the feds even more of your money?
If so, boy does Gov. Polis have a plan for you!
Polis announced the state of Colorado will begin accepting cryptocurrency for tax payments later this summer.
The governor is pitching his plan as a move to enhance “consumer convenience,” but experts are cautioning paying taxes in crypto would be a pretty stupid idea for most people.
That’s because the government treats cryptocurrency as an asset, meaning converting crypto into dollars creates a taxable event. Blockworks reports:
“If you are spending appreciated cryptocurrency to pay taxes, that will trigger more capital gains — a never-ending cycle,” [Shehan Chandrasekera, head of tax at CoinTracker] said. “Spending an appreciating asset for something like taxes is not wise, in my opinion.”
Citizens looking to pay taxes with crypto are going to have to be very careful about where these funds are coming from, said Jordan Bass, owner of Taxing Cryptocurrency.
“It could potentially be easier to make large payments over crypto versus sending a check, maybe for someone that lives mostly on-chain it would make sense,” Bass said. “It sounds cool, making Colorado more blockchain friendly, but I see this as maybe only benefiting a select few.”
Polis said the state is still looking for a firm that will convert crypto into dollars. It is unclear what a prospective firm’s fee would be for each transaction.
It doesn’t take a PhD in economics to realize adding a transaction fee on top of taxable capital gains would create a pretty strong disincentive for most people to bother paying their taxes in bitcoin.
What’s also unclear is whether this plan could end up costing Colorado taxpayers.
Pilot programs to accept digital assets for taxes in Ohio and Florida were ultimately unsuccessful and scrapped because so few people used them.
Polis has not explained how his plan will succeed where others have failed.
We’ve seen a lot election year gimmicks over the years. However, the King of Tax Avoidance giving crypto investors another way to screw themselves with the IRS has to be one of the dumbest.