You run a small business that has earned a tidy little profit for 2018. You work with a CPA that specializes in tax services with the expectation that 2019’s filings will go off without a hitch. But then your CPA recommends you pay your business taxes with cryptocurrency. Would you do it?
The question is not as far-fetched as it sounds. In 2018, Ohio became the first state to announce a new platform for paying certain kinds of business taxes using Bitcoin. Although the system is limited to just 23 kinds of tax payments for now, Ohio intends to expand the system to eventually include all state taxes.
Gurian PLLC, a Dallas CPA firm that offers both individual and business tax services, suggests the Ohio system might have some appeal to small businesses that already deal in cryptocurrency. According to Fortune magazine though, even big corporations are eyeing cryptocurrency tax payments. Overstock is just one of them.
Accepting and Paying with Bitcoin
Overstock recently announced plans to pay some of their business taxes in Ohio with Bitcoin. Their decision makes sense when you consider that the company also accepts Bitcoin payments from their own customers. Moreover, Overstock doesn’t stop at just Bitcoin. They accept numerous kinds of digital coins in lieu of credit card payments.
According to Fortune, everybody wins. Paying Ohio taxes with a credit card typically incurs a service fee in the neighborhood of 2.5%. The fee for Bitcoin payments is just 1%. And when you are buying from Overstock using crypto, they pay a lower service fee for transaction processing. Lower fees generally translate to lower prices for everyone.
How the System Works
So, is the state of Ohio dealing directly in Bitcoin? No. The state treasury has contracted with BitPay to handle Bitcoin tax payments. BitPay will accept the payments and immediately convert them into U.S. dollars that will be transferred electronically to state coffers. This eliminates the risk for the state while allowing BitPay to make its profit on transaction fees.
This sort of system is necessary in order to accomplish two important things. First, state government wants to stay out of cryptocurrency because it is not considered legal tender at this time. More importantly though, states like Ohio also don’t want to be subject to the volatility of cryptocurrencies. Getting directly involved would mean jeopardizing state treasuries should cryptocurrency prices plunge.
What It Means for CPAs
Let’s assume that Ohio’s plan catches on nationwide – and it’s quite likely it will – what would that mean for CPAs? In the short term, not much. CPAs offering business tax services would continue following the same accounting principles and offering the same advice. The only difference would be making actual payment using a crypto transfer rather than a business bank account.
The long-term is another matter. It’s probably only a matter of time before standard accounting practices fully embrace blockchain technology and alternative payments. When that time comes, CPAs will have to familiarize themselves with cryptocurrency payment platforms or pass the payments portion of what they do back to clients. Either way, blockchain and crypto combined are going to change what business tax services look like.
So, would you pay your business taxes using cryptocurrency? It will be interesting to see what happens in Ohio over the next 12 months. A successful program will likely lead to expansion of Ohio’s system by the end of 2019. And any success in Ohio will probably spur other states to follow suit. Who knows? We could all be paying our taxes with crypto at some point.