Crypto Could Help Save On Tax Payments As Rising Bitcoin Price Ushers In New Benefits
The topic of crypto and taxes is a tricky one because it combines two of the most complex issues in the financial world; the very volatile world of cryptocurrency and the also the very confusing world of taxation.
For quite some time, jurisdictions around the world refused to implement proper cryptocurrency tax laws. Refusing to take the Industry seriously. However, crypto use has seen an increase in the last few years and there has been a distinct need for the creation of clear and concise crypto taxation laws.
This has been done in many countries around the globe, but the US has been falling behind. The US state of Ohio made news in 2018 for becoming the first state in the United States to accept bitcoin as a form of tax payment. This heralded a brand new era of adoption as those within Ohio can pay tax in the form of bitcoin.
According to Robert W Wood, a tax lawyer, there are some increased benefits to paying taxes within Ohio in form of cryptocurrency as it could make the process cheaper for the individual considering the volatile nature of the crypto market.
Saving With Bitcoin
According to Wood, selling cryptocurrency could trigger taxes for capital gains, or losses depending on if you made a profit. Those losses could be spread to the next year to help pay for future gains. The option of paying taxes with cryptocurrencies could expand beyond bitcoin in the near future.
In Ohio, there is a transaction free 3-month introductory period after which there is a 1 percent fee. However, this option is available only for businesses that operate in Ohio and should a business fall under this category, they can register on Ohiocrypto.com and the funds will be converted into dollars before they are deposited into the state account. It is also important, he says, to note that in 2018, the IRS decided that crypto is considered property and this has certain tax consequences which are further accentuated by its volatile nature.
Most people would assume that they would only need to pay the bitcoin equivalent of whatever amount they owe in taxes but because the transfer of crypto to the tax authority is considered a sale, more taxes could be incurred from the year of payment.
The amount the token was worth when during the purchase and during the sale will also be taken into consideration as taxes could be made lower as a result for federal tax purposes. Should crypto be bought and then transferred when it has reached a lower value the sale could trigger a loss which might be applicable onto the tax bill. At the same time, a number of transfers can trigger various taxes.
Woods also delved into the protocol for independent contractors who are paying with crypto. Independent contractors will need to issue a 1099 IRS form and the payment must be stated in dollars as of the time of payment and the cryptocurrency must be reported in the same way as other property. Also, a sale by the Independent contractor could trigger a gain or loss depending on their tax bases. If the asset is held for more than a year, it is best considered a long-term capital gain. This is determined by whether the digital currency is being held as a capital asset as most people would say they are investors in crypto but not traders using it for their business.
At the same time, ordinary income vs long-term capital gain could spell a great difference in the amount of money being taxed and every time crypto is transpired a loss or gain might incur. As such, when digital assets are received as payment, its fair market value must be recorded as income.