Can you pay taxes with Bitcoin? How do you pay with Bitcoin?
Bitcoin and other cryptocurrencies have now been around for a while. As more people invest in Bitcoin, they are looking for ways that they can use this investment.
Investing in cryptocurrencies, like Bitcoin, is not only a great way to further diversify your assets into different stores of value, but can also be used in more regular transactions.
How you can use bitcoin is going to depend primarily on the countries in which you spend your time and where you pay your taxes. It’s possible to find places that are more open to Bitcoin and cryptocurrency investors and therefore conducting transactions using bitcoin.
In this article, we’ll discuss:
- What is Bitcoin?
- What is the Value of Bitcoin?
- Can You Pay Taxes with Bitcoin in the US?
- Can You Pay Taxes with Bitcoin in Your State?
- What Can Bitcoin Be Used For?
- How Do You Pay with Bitcoin?
- How is Bitcoin Taxed?
- Crypto-Friendly Countries
What is Bitcoin?
To put it briefly, bitcoin is a digital currency. Bitcoin isn’t attached to any specific country, making it a borderless currency.
Bitcoin is one of the most well-known cryptocurrencies because it was one of the first introduced to the market, but there are actually over 5,000 different kinds of cryptocurrencies.
Most cryptocurrencies have a hard limit, which means there are only so many crypto coins that can be mined. Along this vein, there are only 21 million bitcoin tokens.
What is the Value of Bitcoin?
How much is bitcoin worth? The value of Bitcoin and other cryptocurrencies changes frequently and wildly. In 2013, a single Bitcoin was worth about $1,200.
Some crypto investors will put their money into cryptocurrency and hold it long-term. Like similar investments, your cryptocurrency can increase in value while you hold it, but there’s also a chance that the value will fall.
If you bought $1,000 in Bitcoin last year, it would be worth $7,100 now.
But for all that your Bitcoin is worth, what is there to do with it? How do you pay with Bitcoin? Can you pay taxes with Bitcoin?
We’ll cover Bitcoin and cryptocurrency taxes as you continue to read and go over ways that you can use Bitcoin as currency instead of just keeping it as an investment.
Can You Pay US Federal Taxes with Bitcoin?
Can you pay taxes with Bitcoin?
As of right now, you cannot pay US federal taxes with bitcoin. The Internal Revenue Service (IRS) does not accept bitcoin or any other cryptocurrency for tax payment.
The IRS only accepts payment in US dollar. You can pay through card, check, cash, or direct transfer from your bank account.
If you are really wanting to use your bitcoin to pay your taxes, you can go through a payment processor.
Wyre (the rebranded name of SnapCard) allows you to make transactions using digital currency, such as bitcoin. They offer an option for you to use their service to pay the IRS. Through them, you won’t be using bitcoin to pay the IRS directly, but you’ll pay your bitcoin to this payment processor and they will process it into a payment that the IRS will accept. You will still be using your bitcoin to pay your taxes, but it takes an extra step.
Can You Pay Taxes with Bitcoin in Your State?
Ohio passed a law in 2018 that allowed companies to pay state taxes with bitcoin. However, that decision was reversed shortly after.
So why didn’t it work out?
Ohio began to accept bitcoin for tax payments in an attempt to become a leader in blockchain and a crypto-friendly state. Payments were facilitated through BitPay.
The website that Ohio used to accept these payments — OhioCrypto.com — was possibly initiated unlawfully. Additionally, less than 10 businesses in total used this option to pay taxes with bitcoin during the nearly year-long period that the option was available.
Other states have proposed allowing payments with cryptocurrency, including Arizona, Georgia, Illinois, New Hampshire, and Utah. None of these laws have been passed thus far.
What Can Bitcoin Be Used For?
If you can’t use bitcoin or any other cryptocurrency to pay your taxes, what can Bitcoin be used for? How do you pay with bitcoin?
Cryptocurrency is still a relatively new concept. Many people throughout the world neither understand nor trust it. Many places won’t accept bitcoin or any other cryptocurrency as payment. They don’t want anything to do with it.
Still, there are lots of people and businesses who are crypto-friendly and will allow you to pay for their goods or services using a cryptocurrency like bitcoin. Some very major companies will accept bitcoin payments, including Apple, Microsoft, Dell, Overstock, and eBay.
And while you could use your bitcoin to purchase furniture on Overstock, you can also make a much larger purchase — think a passport, real estate, or gold.
Some countries have citizenship by investment programs that accept bitcoin. Vanuatu was the first country to open up a bitcoin option for purchasing citizenship by investment. This program will cost you around $200,000 total once you’ve added up the cost of your donation to the country, agent fees, and legal fees.
Antigua and Barbuda has also become a very tax-friendly country. While they do not accept bitcoin for citizenship payment currently, there’s a possibility that Antigua and Barbuda’s citizenship by investment program may accept bitcoin in the future.
You could also use cryptocurrency to invest in real estate. The Aston Crypto Plaza in Dubai allowed apartments to be purchased using cryptocurrency. You may even be able to use your bitcoin to purchase land. Land on Union Island was once auctioned and sold for $7 million and paid for in bitcoin.
Bitcoin can also be used to purchase gold. Bullion Star accepts cryptocurrency to purchase gold and other precious metals. Investing in crypto is a great way to diversify your financial assets, but if you want to be truly diversified, you’ll want to have some of your money in other stores of value as well.
You may also find that there are people throughout the world who will accept bitcoin as payment for their services. As time goes on, more and more crypto-minded businessmen and entrepreneurs are investing in bitcoin and cryptocurrency and are eager to accept crypto as payment.
How Do You Pay with Bitcoin?
Bitcoin doesn’t have to just be saved up as a long-term investment. You can use it now to pay for various goods and services.
So if a company or person will accept payment in bitcoin, how do you get the bitcoin to them? How do you pay with bitcoin?
If you’re investing in bitcoin, you can use a bitcoin exchange platform, such as Coinbase, Binance, or Kraken. These allow you to trade bitcoins through a broker. Another option for paying with bitcoin is to use a peer-to-peer exchange service.
Another way to pay with bitcoin is through a bitcoin debit card. Bitcoin debit cards can be used even if the vendor doesn’t accept bitcoin, as that bitcoin can be converted automatically when you make the purchase.
Some websites and companies already have a crypto transfer service that you can use to pay. You can pay through your crypto wallet — they’ll just ask for your wallet address.
But be aware that not all crypto transactions are created equal. Some crypto transfer services are going to charge you a fee when you use your bitcoin to make a purchase. In addition to that, when you sell or gain a bitcoin or other cryptocurrency, you can be taxed on that transaction.
How do you pay with bitcoin cash? Bitcoin cash is designed to be spent and is a bit easier to use. Many vendors already accept bitcoin cash. Bitcoin cash also has fewer fees for transactions.
How is Bitcoin Taxed?
Do you have to pay taxes on bitcoin?
The IRS considers Bitcoin to be property for tax purposes. This means bitcoin is taxed how property is taxed.
Bitcoin that is acquired is taxable. Bitcoin that is exchanged may be taxed if the sale price of the bitcoin is more than its price when you first acquired the bitcoin. If it is, you will have to pay capital gains tax.
You’ll be required to report any gains or losses of bitcoin on your US tax return if you are a US person.
There is further evidence of the regulation with the US Treasury announcing that any bitcoin transaction in excess of $10,000 will have to be reported to the IRS.
Some countries have more regulations and taxes on cryptocurrency than other countries. If you are a crypto investor in a high-tax Western country like the US, it’s a good idea to create a backup plan, and consider what part your crypto investment will play.
You may want to become a citizen or tax resident of a crypto-friendly country. These are countries that are going to tax you less on your crypto if they tax you at all. They also won’t impose as many crypto regulations. Some will also be more open to citizens using crypto as currency while within the country.
Be aware that if you are a US person with crypto — or a citizen of another high tax and highly regulated country — and decide to leave your country and renounce your citizenship, you may have to pay an exit tax on your assets. This includes your cryptocurrency.
Because the value of cryptocurrency tends to change, it may be a good idea to wait for the currency to dip a little bit. Then you can leave and take advantage of a lower exit tax value. At the same time, there’s no sure way to know what will happen with cryptocurrency or with your government’s regulations, so you might want to make sure you prepare early and get out before things get worse.
The United States is not the most crypto-friendly country. Crypto investors in the US are faced with many taxes and regulations on their cryptocurrency — and it’s possible things will get worse.
At the same time, there are many countries that are striving to be leaders in the cryptocurrency world by being crypto-friendly.
Can you pay taxes with bitcoin in any other country outside of the United States? Currently, there aren’t any countries that allow you to pay tax in bitcoin, but these crypto-friendly countries may change their policies in the future.
Earlier, we mentioned Antigua and Barbuda. There are plenty of options for spending your bitcoin in Antigua and Barbuda. You can use Bitcoin Cash in Antigua and Barbuda to pay for food at a restaurant, buy gas for your car, book a villa for the weekend, or pay a taxi to take you across town.
Antigua and Barbuda are not the only Caribbean islands for crypto investors to spend their time. The Cayman Islands are friendly towards crypto businesses. The Cayman Islands are also a tax haven and don’t charge any income tax.
Portugal is another country that has taken some very crypto-friendly steps forward. Portugal has crypto-friendly banks — many banks throughout the world don’t want anything to do with cryptocurrency.
Portugal’s government has also already stated that they aren’t going to place heavy taxes or regulations on cryptocurrency now or in the future. There will not be any tax on crypto profits made or held by individuals — though there may be some for corporate entities.
If Portugal isn’t for you, but you would still prefer to spend time in Europe, Germany, Belarus, and Austria are some other European countries that are crypto-friendly.
Germany won’t tax your cryptocurrency if your profits are below 600 euros. Belarus has a policy where they don’t tax any profits made from crypto mining, crypto training, initial coin offerings (ICOs), or capital gains made from cryptocurrency until 2023.
In Asia, Singapore has no tax on crypto for individuals or long-term holders of cryptocurrency.
Let’s review. Can you pay taxes with Bitcoin?
While you can’t use bitcoin to pay taxes in the US, there are plenty of other ways that you can use your cryptocurrency, and many countries throughout the world are promoting the use of bitcoin for various transactions.
How do you pay with Bitcoin?
You can use Bitcoin to get a second passport and start living a global lifestyle in crypto-friendly countries, rather than staying in a country that will tax your crypto investments every time you gain new crypto tokens or make an exchange.
Bitcoin and other cryptocurrencies can also be used to create a diverse financial plan that will keep you and your assets safe.