Crypto payments, even for taxes, could arrive sooner than investors think

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As the institutional and regulatory pivot towards more pro-crypto, or at least less anti-crypto, stances and positions continues, there remains one specific area where progress has remained very limited; taxes and tax treatment. While crypto investors and advocates have achieved some success vis-à-vis the SEC, both in court and in terms of public perception, the IRS has been less open to change. In all fairness, it is the IRS’s prerogative to enforce current tax laws and interpret those laws; it is up to Congress to amend existing tax laws before the IRS can change enforcement mechanisms. That said, the IRS has been active in issuing cryptocurrency tax announcements, answering frequently asked questions, and making public comments on these topics; conversations that are often helpful but have not resulted in any changes to tax treatment.

Building on the momentum that has recently taken hold in Congress in the form of 1) the rebuke of SAB 121, 2) the passage of FIT21 in the House, and 3) the influence of Crypto SuperPACs, Florida Representative Matthew Gaetz has introduced a account that would allow US taxpayers to pay federal taxes using bitcoin. Two of the major changes this bill, if passed, would bring about are a change to the IRS tax code to allow such a payment option, as well as enlisting the U.S. Treasury to develop and implement a system to allow tax payments in bitcoin are processed.

The likelihood of this bill becoming law is low, especially since crypto has become a late addition to the list of hot-button issues for the 2024 presidential race, but there are a few factors worth looking at.

It wouldn’t be the first in the US

One piece of information that may surprise some cryptocurrency investors is that this proposed legislation is not the first time this has been suggested, but it is also not the first time that paying taxes with bitcoin has happened in the US. Ohio was the first state to launch a pilot program allowing residents to pay certain state taxes and other fees using bitcoin before postponing the program in 2019 due to technical issues. Following this pilot, several other States including Colorado and Florida, both of which allow residents to pay certain taxes and fees using bitcoin.

Regardless of whether or not Rep. Gaetz’s proposed legislation advances in any material capacity, the fact remains that there is, and has been, an appetite at the state level to allow taxpayers to pay certain expenses using bitcoin. Government mandates and incentives, however, are only one part of the larger story of cryptocurrency, or the economic appeal of any asset class, and these efforts ignore a fundamental issue.

Do bitcoin investors really want to pay taxes using bitcoin?

Who would pay using Bitcoin

Tax policy aside, it’s important to remember that most bitcoin doesn’t tend to be traded, despite retail discussions on social media and recent institutional purchases. Even taking into account recent profit-taking amid the 2024 bull market, the percentage of bitcoin that has not moved in the last 18 months remains at more than 60%. Long-term hodlers are not a new phenomenon in the crypto market, but the fact that such a large percentage remains unchanged despite recent market rallies is indicative of bitcoin investors’ apparent low interest in spending their bitcoin holdings.

In addition to the long-term belief that investors have in these assets, remembering that for many bitcoin is an asset class and investment like any other, the tax treatment and accounting requirements for such transactions represent a significant obstacle. For example, being able to pay federal income taxes using bitcoin is good, but if every other transaction generates a tax liability, tax reporting obligation, and potential headaches with data collection and preparation, this will continue to dissuade the use of bitcoin. bitcoin as a medium of exchange.

Integrating crypto payments is good policy

As it remains unlikely that any bill causing substantial changes to US cryptocurrency policy will become law in the short or medium term, analysis of any specific piece of proposed legislation may seem like a moot point. This ignores the larger importance of these proposed changes, as the popularization of the idea of ​​cryptocurrency payments across industries is a sign of how far the conversation has quickly advanced. Gone are the days when the SEC had undisputed influence over the regulatory conversation, facing several setbacks and a recent lawsuit filed against it by Coinbase. In its place is an environment where, although still controversial and viewed with suspicion by some policymakers, cryptographic and tokenized applications are finally emerging from the shadow cast over the sector by the collapse and criminal activity at FTX.

Cryptographic payments for taxes and other purposes continue to evolve from concept to reality; This is good news for cryptocurrencies and US innovation in general.

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