Did any Coloradans pay their income taxes in crypto?

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This year, Tax Day isn’t just the deadline for individuals to submit their tax returns and associated payments. It also marks the close of a unique tax season in Colorado history: the first in which the state accepted digital assets.

Last September, Governor Jared Polis kicked things off by announcing that effective immediately, Colorado would begin accepting cryptocurrencies as payment for a number of different taxes, including state income taxes. . The move wasn’t all that surprising to Polis, who has been an avowed fan of blockchain tech since before he became governor of Colorado and has since made several appearances at ETHDenver, the annual crypto conference held in Mile High. City.

What’s surprising is how few Coloradans have actually done so: As of April 14, only 11 people were paying their income taxes using crypto, according to the Colorado Department of Revenue. Of the roughly 3.1 million personal tax returns Colorado can expect to receive this year, that’s just 0.00035%. To put that rate of return into context, someone has roughly the same chance of being struck by lightning in one year as the state of Colorado by receiving a tax payment in crypto.

Colorado uses PayPal to handle all cryptocurrency payments from taxpayers, which converts users’ crypto into US dollars before it reaches the state treasury. Therefore, says Carr, no risk to the state.

But according to a few experts in Colorado’s cryptocurrency community, PayPal is the problem and that’s why almost no one paid their taxes in crypto this tax season.

Most people I know won’t use PayPal, says John Paller, founder of ETHDenver. Crypto is meant to decentralize our business activities, not replicate old systems with new payment assets. The fact that there are additional steps does not make sense, and we have provided these comments to Governor Polis.

The additional steps Paller refers to stem from the fact that PayPal introduces fees and requires additional actions from taxpayers. For starters, PayPal adds a surcharge of between 1.5-1.8% on top of all crypto payments, so there is an additional expense. Crypto users also have to make the decision to buy crypto on PayPal or transfer assets to PayPal from other digital wallets (and transfers also have fees). And crypto enthusiasts say that perhaps the biggest problem with PayPal is that the platform only accepts four types of currenciesBitcoin, Bitcoin Cash, Litecoin, and Ethereum, and all have values ​​that fluctuate wildly with the market.

Bitcoin, for example, was valued at around $20,000 last September when Polis announced the crypto tax option, but it currently hovers around $30,000. This means that, if used to pay, say, a state tax of $1,000, the taxpayer would need approximately 0.033 Bitcoin today. But what if you tried to pay that same $1,000 state tax last September when Bitcoin was valued a third lower? You would have needed 0.05 Bitcoin.

Tom Koceja, a Greenwood Village-based accountant specializing in crypto taxes, says most of his clients prefer to pay for services (including paying for it) using another type of cryptocurrency called stablecoins, which many imitate. the US dollar and are pegged to $1 each. . The other class of fluctuating cryptocurrencies, like the four that PayPal accepts, require a gain or loss calculation because PayPal essentially sells the asset when users make a payment, Koceja explains.

In other words, there could be an additional capital gains tax. If the crypto asset has increased in value since when a user originally purchased it, Bitcoin has gone from $20,000 to $30,000, this filer is subject to capital gains tax when PayPal sells the asset during a payment transaction. And most people won’t pay [a currency] it creates another tax liability for them, says Koceja.

What if an asset has depreciated? A person might also be reluctant to sell it at a loss (which, after a down year for crypto last year, might explain why so few Coloradans paid their state taxes in crypto).

Like ETHDenver’s Paller, Koceja says the states system needs to be improved in order to increase crypto user participation. It’s convoluted, he says of the current option. But for the future, said the accountant, I think it’s cool that the Ministry of Revenue did this. Seeing them start is great.

With some changes, he adds, he thinks Colorado will see more crypto users paying their taxes in blockchain assets. I think with payment in stablecoins, more marketing around, and maybe a wallet address [operated by the state] where people could directly send their crypto, was not that far away, he says. And very soon, Koceja says it won’t just be Colorado sending stablecoins to pay for things like income taxes. You’re going to see this stuff everywhere, and it’ll be better, he promises.

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