It’s official, you are now able to pay for your taxes with cryptocurrency. Starting September 1, 2022, the state of Colorado made it possible for residents to use various cryptocurrencies as a valid form of tax payment. This includes the two most popular cryptocurrencies, Bitcoin and Ethereum. Cryptocurrency has grown tremendously as a form of digital payments in the past few years, and this news only further reflects on this.
So how does it work?
Colorado residents who want to pay for their taxes with cryptocurrency must do so online. This shouldn’t be a surprise, as cryptocurrency is of course digital and requires some type of interface to access. This can be done through the state’s Revenue Online website. From there you can go through the normal steps of paying your taxes, but you now have the option to select cryptocurrency through PayPal’s Cryptocurrencies Hub. Once you select this option, you can then choose which cryptocurrency you would like to pay with.
One thing you may instantly notice is that PayPal is the only option you currently have for paying taxes with cryptocurrency. The reason Colorado’s Revenue Department is partnering with PayPal is because even with this change, they are still not allowed to accept any direct crypto payments. Because PayPal is the party accepting the cryptocurrency, they can then convert it to USD. As a result of this, there is unfortunately a service fee that comes out to $1.00 + 1.83% of whatever the full payment amount was. This is pretty standard of PayPal when it comes currency conversion, as they deal with many different currencies from around the world. Cryptocurrency is no exception to this service fee they deduct.
Who should take advantage of this new option?
Now that you know the details of this new option for paying your taxes, you might be wondering if it’s something you should consider doing. For reasons that will be further explained in the next section, only people who have already invested in cryptocurrency should consider paying their taxes with it. Those that have held onto certain cryptocurrencies might already have a stockpile of it, which they might find to be better for them to pay their taxes with. This is of course dependent on the person, whether or not they profited from their initial investment, and whether or not they intend to hold their currency for longer. If they don’t intend to, it might be a good time to use it wherever possible.
Is now a good time to invest in cryptocurrency?
If you have kept up with the news regarding the state of cryptocurrency in the last couple of months, you would already know that the answer to this question is no. Currently, the two most popular cryptocurrency (and most cryptocurrency as a whole) is at an all-time low. Bitcoin and Ethereum are doing much worse than they have for a while, and as a result it’s not the best idea to invest in them now. This might be disappointing for some, especially Coloradans who of course now have the option to pay their taxes with crypto.
Why is cryptocurrency not doing so well right now?
There are a number of reasons why cryptocurrency is currently as far down as it is, and they mainly have to do with the uncertainty surrounding it. One reason for the uncertainty is due to the federal reserve increasing funding. In addition to this, Ethereum, one of the biggest cryptocurrencies, recently switched from being a “proof of work” currency to being “proof of stake.” This makes it impossible for one to mine Ethereum, which was one of the biggest ways people profited off of it. While this change is great for the environment, it isn’t so great for those who have invested in expensive mining rigs.
What precedent does this change set for the future?
The state of Colorado has set a new precedent for cryptocurrency by being the first state to allow it to be used for taxes. Cryptocurrency still might not be accepted everywhere, but this change certainly shows that small steps are being taken for it to be. While crypto might not be in the best of states currently, there’s no telling where it’s going to go in the future. Changes like the one Colorado has made will undoubtedly allow it to grow in new ways.