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In the US, the Inland Revenue Service (IRS) is not accepting Bitcoin, Ripple or Ethereum for taxes yet. But it might not be too far off, with Arizona moving to become the first state in the country to accept payments in crypto and other states likely to follow. If passed, Arizona’s Senate Bill 1091 would allow income taxes to be paid in Bitcoin and other cryptocurrencies that are approved by the Arizona Department of Revenue. The changes would not come into effect until 2020, which seems like light years away.
Tax authorities would be required to convert such payments to dollars at the prevailing rate. That makes sense since tax obligations are in dollars. Taxpayers would get credited with the converted dollar amount. Any swing in price that resulted in the state not getting the full payment would be the responsibility of the taxpayer – so the timing is relatively important.
However, what so far few seem to be noting is the taxable nature of paying in cryptocurrencies. After all, rightly or wrongly, the IRS position is that cryptocurrency is property, not currency. This fact has some big tax implications.
For example, say you owe $5,000 in taxes. You could pay the $5,000 in dollars. Or soon, you could pay with $5,000 worth of say Bitcoin, Ripple, or Ethereum. So far so good. As long as the crypto is worth $5,000 when you pay, you’re home free, right?
Not really. After all, you need to consider the sale you just made. Yes, the transfer of the crypto to the tax authority is itself a sale, and that could mean more taxes