Overstock (OSTK), will become the first company in the U.S. to pay its taxes in bitcoin.
The online retailer will take advantage of a program in Ohio, announced in November, to pay a portion of its taxes using the cryptocurrency. Overstock was an early adopter of bitcoin , becoming one of the first major retailers to accept bitcoin for payment on its site in 2014.
Overstock chief executive officer and founder Patrick M. Byrne said in a statement that “thoughtful government adoption of emerging technologies when accompanied by non-restrictive legislation over these technologies” is the best way forward for the U.S., and other advanced economies.
The plan may sound like a gimmick, but it could actually be a money-saver for businesses in the crypto space, said Neeraj Agrawal, director of communications at Washington, D.C.-based cryptocurrency policy think tank Coin Center.
“This would be good idea for a business that already has a lot of bitcoin as it saves them the step of converting their bitcoin to dollars before paying taxes,” he said. “Now they will just be converted right at the moment of payment.”
The same goes for people looking to pay their personal income taxes with cryptocurrency, which is not currently allowed in Ohio but will be eventually in the second phase of the program, Ohio state treasurer Josh Mandel told Bitcoin magazine.
“In Phase II, we hope to expand Ohiocrypto.com to include individual personal taxes, and also to expand beyond just bitcoin and include other cryptocurrencies as well,” he said. “We thought the most intuitive and responsible way to begin this initiative, because it’s the first time it’s ever been done in America, is to start it off right — and that is by only allowing businesses to pay with bitcoin, and expand it out from there.”
As with all cryptocurrency payments, the transaction will trigger capital gains taxes on the bitcoin used to pay taxes. In other words, you’ll have to pay taxes on your taxes.
While this may sound like a headache, it can actually help people who have lost money in bitcoin’s volatile year, said Farrukh Shaikh, chief financial officer and cofounder of Gath3r, a cryptocurrency mining service.
If the current bitcoin price is higher than the price you originally paid, then you would have to pay extra tax on the now realized gain from the bitcoin payment. However, if the current bitcoin price is lower than your basis price, then it amounts to realizing a loss on the bitcoin, which can be offset against your total tax bill and reduce it.
“Using bitcoin to pay taxes may be attractive to people who are currently at a loss from their bitcoin entry price if they want to reduce their bitcoin holdings and pay taxes around the same time,” he said.
Bitcoin fell from highs of nearly $20,000 per coin in December 2017 to 10 consecutive sessions below $4,000 in late 2018.
The Internal Revenue Service hasn’t released a detailed policy on how to go about paying taxes using cryptocurrency, besides a ruling in 2014 stating that selling bitcoin is treated the same as selling property or any other capital asset. People must report each transaction in terms of whether it was a loss or a gain, which can be difficult given the volatility of cryptocurrencies.
Experts suggest filing taxes with a Certified Public Accountant, particularly one with cryptocurrency expertise, if you have done business in bitcoin in the past year. Thus far, Ohio is the first and only state to accept bitcoin payments from businesses for taxes.
Mandel said the state wanted to show it is on the forefront of new technology by announcing the new tax policy by announcing Ohiocrypto.com.
“We wanted to project to the rest of the country that Ohio is embracing technology and is a place that is welcoming software developers and entrepreneurs who want to build a blockchain business here in the state of Ohio,” he said.