Colorado becomes the first US state to accept crypto tax payments

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Colorado governor makes good on his crypto payment promise.

Important points

• Colorado residents can now pay their state taxes in crypto.
• Crypto tax payments must be made through PayPal and come with additional fees.
• If you plan to make crypto payments, make sure you understand the tax implications.

Various states have presented their crypto-friendly credentials in recent years. But Colorado has stepped up to become the first state to accept crypto payments for state taxes. according to Denver GazetteColorado Governor Jared Polis confirmed this week that the state will accept cryptocurrency payments for all state tax bills.

Colorado’s crypto tax payments

Polis first proposed the idea of ​​crypto tax payments earlier this year, but it has taken a while to make it a reality. Colorado residents can now select cryptocurrency as a payment option on the income payment website. Cryptocurrency payments must be made through PayPal and come with a fee of $1 plus 1.83% of the payment amount.

Colorado’s pro-crypto legislation earned it a spot on The Ascent’s list of top five crypto states. Back in 2019, the state of Colorado passed the Digital Token Act, which exempts certain cryptos from securities regulations. Progress on the payment of crypto taxes is another big step. Assuming the state follows its previously announced plans, it will not hold any crypto – the tax payments will be immediately converted to dollars.

Other cities and states have introduced crypto-friendly legislation and made high-profile bids for the cryptocurrency. For example, the mayors of both Miami and New York chose to take their first paychecks in Bitcoin (BTC), while other places have tried to attract crypto businesses by making it easier for them to operate in those places.

Should you pay taxes – or anything – with crypto?

Despite the fall in crypto prices, adoption continues. You can use a crypto debit card connected to your crypto exchange to make many types of payments. In addition, there are a number of places where you can pay with crypto. However, there are a few things to take into account.

• Charges: There are a few different fees associated with crypto payments. You may pay a fee to buy crypto, as well as a fee when depositing fiat (traditional) currency on a crypto platform. On top of this, as the Colorado example shows, you may face fees when making the actual payment. While crypto may not be the most expensive payment option for Colorado residents, there are also several free ways for them to pay their taxes.
• Taxes: When you pay with crypto, there are tax implications. It is essentially considered selling your crypto and you may have to pay capital gains tax. Learn more about crypto taxes here.
• It does not fit with a buy-and-hold investment strategy: If you bought Bitcoin because you plan to keep it for the long term, it’s counterintuitive to use it to buy a coffee or pay taxes. It will be similar to using a stock investment to pay your daily bills.

It is very early days for cryptocurrency payments. Right now, many crypto fans may find that the advantages – such as being able to pay even if you don’t have a bank account – are outweighed by the disadvantages. This is especially the case if you are a long-term investor who plans to keep your investments for the next five, 10 or 20 years.