For almost 5 to 6 years, we have been surrounded by cashless currencies and cryptocurrencies as well. Never forget bitcoin, which is so much in news that it’s use is now considered to be quite valuable. Here is the example.
Starting Monday, businesses in Ohio will be able to pay their taxes in bitcoin — making the state that’s high in the middle and round on both ends the first in the nation to accept cryptocurrency officially.
Companies who want to take part in the program simply need to go to OhioCrypto.com and register to pay whatever taxes their corporate hearts desire in crypto. It could be anything from cigarette sales taxes to employee withholding taxes, according to a report in The Wall Street Journal, which first noted the initiative.
Bitcoin has struggled to become a widespread form of payment, but Ohio Treasurer Josh Mandel says that Bitcoin for business tax payments has several benefits on the OhioCrypto.com website, like being “quick and easy,” trackable, secure, transparent, incurs low fees, and allows taxes to be paid via mobile devices.
There are 23 taxes that can be paid with Bitcoin, including sales tax and withholdings taxes. For a full list of eligible taxes, check OhioCrypto.com’s FAQ page.
Ohio Businesses will be able to pay these eligible taxes via the OhioCrypto.com site. The Ohio Treasury is looking to add more accepted cryptocurrencies in the future.
The brain child of current Ohio state treasurer, Josh Mandel, the bitcoin program is intended to be a signal of the state’s broader ambitions to remake itself in a more tech-friendly image.
Already, Ohio has something of a technology hub forming in Columbus, Ohio, home to one of the largest venture capital funds in the midwest, Drive Capital . And Cleveland (the city once called “the mistake on the lake”) is trying to remake itself in cryptocurrency’s image with a new drive to rebrand the city as “Blockland”.
Whether anyone will look to take advantage of Ohio’s newfound embrace of digital currencies is debatable.
Latest With Bitcoin Taxes
Around the world, tax authorities have tried to bring forth regulations on bitcoins. The US Internal Revenue Service (IRS) and its counterparts from other countries are mostly on the same page when it comes to treatment of bitcoins. The IRS said that the bitcoin should be treated as an asset or an intangible property and not a currency, as it is not issued by central bank of a country. Bitcoin’s treatment as an asset makes the tax implication clear.
The IRS has made it mandatory to report bitcoin transactions of all kinds, no matter how small in value. Thus, every US taxpayer is required to keep a record of all buying, selling of, investing in, or using bitcoins to pay for goods or services (which the IRS considers bartering). Because bitcoins are being treated as assets, if you use bitcoins for simple transactions such as buying groceries at a supermarket you will incur a capital gains tax (either long-term or short-term depending on how long you have been holding the bitcoins). When it comes to bitcoins the following are different transactions that will lead to taxes:
- Selling bitcoins, mined personally, to a third party.
- Selling bitcoins, bought from someone, to a third party.
- Using bitcoins, which one may have mined, to buy goods or services.
- Using bitcoins, bought from someone, to buy goods or services.
Scenarios one and three entail mining bitcoins, using personal resources, and selling them to someone for cash or equivalent value in goods and services. The value received from giving up the bitcoins is taxed as personal or business income after deducting any expenses incurred in the process of mining. Such expenses may include the cost electricity or the computer hardware used in the mining of bitcoins. Thus, if one is able to mine 10 bitcoins and sell them for $250 each. You have to report the $2500 as taxable income before any deductible expenses.
Scenarios two and four are more like investments in an asset. Let’s say bitcoins were bought for $200 each, and one bitcoin was given up in exchange of $300 or equivalent value in goods. The investor has gained $100 on one bitcoin over the holding period and will attract capital gains tax (long-term if held for more than one year, otherwise short-term) on $100 earned by selling/exchanging the bitcoin.
If bitcoins are held for a period of less than a year before selling or exchanging, a short-term capital gains tax is applied, which is equal to the ordinary income tax rate for the individual. However, if the bitcoins were held for more than a year, long-term capital gains tax rates are applied. In the US, long-term capital gains tax rates are 0% for people in 10%-15% ordinary income tax rate bracket, 15% for people in the 25%-35% tax bracket, and 20% for those in the 39.6% tax bracket. Thus, individuals pay taxes at a rate lower than the ordinary income tax rate if they have held the bitcoins for more than a year. However, this also limits the tax deductions on long-term capital losses one can claim. Capital losses are limited to total capital gains made in the year plus up to $3000 of ordinary income.
However, taxation on bitcoins and its reporting is not as simple as it seems. For starters, it is difficult to determine the fair value of the bitcoin on purchase and sale transactions. Bitcoins are very volatile and there are huge swings in prices in a single trading day. The IRS encourages consistency in your reporting; if you use the day’s high price for purchases, you should use the same for sales as well. Also, frequent traders and investors could use “first in, first out” (FIFO) or “last in, first out” (LIFO) accounting techniques to reduce tax obligations. (Refer to the Bitcoin Tax Guide for a detailed explanation of issues in Bitcoin Taxation and reporting.)
The cryptocurrency market is currently in the kind of free-fall (or collapse, or implosion, or conflagration, or all-consuming dumpster fire) that’s usually reserved for tulips in Holland in February 1637.