Bitcoin Tax Payments Could Arrive Sooner Than Expected
The landscape of crypto payments, including for taxes, could be evolving sooner than anticipated by investors. While significant strides have been made in institutional and regulatory attitudes towards cryptocurrencies, the arena of taxes and their treatment remains largely unchanged. Despite successes against the SEC, the Internal Revenue Service (IRS) has been less amenable to modifications. The IRS is mandated to uphold existing tax laws until Congress amends them, necessitating changes before the IRS can adjust enforcement methods. Although the IRS has engaged in discussions, issued guidance on crypto taxes, and responded to queries, there have been no alterations in tax treatment as a result.
Recent developments in Congress, such as the rejection of SAB 121, the passage of FIT21 in the House, and the impact of Crypto SuperPACs, have spurred Florida Representative Matthew Gaetz to introduce a bill enabling U.S. taxpayers to settle federal taxes using bitcoin. If enacted, this bill would require amendments to the IRS tax code to permit bitcoin payments and task the US Treasury with establishing a system for processing such payments.
The likelihood of this bill passing is slim, particularly with crypto emerging as a latecomer among the key issues in the 2024 Presidential race. However, historical precedents are worth noting. This proposed legislation is not the first of its kind, as Ohio previously initiated a pilot program allowing bitcoin payments for state taxes before encountering technical challenges and suspending the program in 2019. Following Ohio’s lead, other states like Colorado and Florida have also allowed residents to utilize bitcoin for certain tax payments.
Regardless of the bill’s fate, the interest at the state level in accepting bitcoin payments for taxes underscores a broader trend. However, the question remains whether bitcoin investors are inclined to use their holdings to pay taxes. A significant portion of bitcoin remains inactive, indicating a reluctance among investors to spend their holdings. Apart from the investment aspect, the tax implications and reporting requirements associated with transactions pose a hurdle to using bitcoin as a medium of exchange.
While substantial changes in U.S. crypto policy are unlikely in the foreseeable future, the broader significance of proposed legislations lies in mainstreaming the concept of crypto payments. The evolving landscape reflects a shift away from the SEC’s dominant regulatory influence towards a more open environment for crypto and tokenized applications. The progression of crypto payments from theory to practice signifies positive developments for the crypto sector and U.S. innovation as a whole.
