Paying Your Tax Bill With Magic Beans?
Ernie Neve, CPA
December 5, 2018
If you pay attention to financial news, you can't escape hearing about Bitcoin and other cryptocurrencies. Bitcoin is just like country music, Justin Bieber, and pineapple on pizza — people either love it, or hate it, but there's no middle ground. The billionaire Warren Buffet dismisses it as a "mirage," a "Buck Rogers" phenomenon, and "rat poison squared." But legions of fans see it someday replacing government-backed currencies. Odds are good that one of the millennials at your holiday table believes in Bitcoin as hopefully as they used to believe in Santa Claus.
Just as Pinocchio always wanted to be a real boy, Bitcoin wants to be real money. That means accomplishing two goals. First, it has to serve as a store of value. You have to be confident that if you put something in, you'll be able to get the same value out. And second, it has to serve as a medium of exchange. That means you have to be able to use it to pay for things just like you would use cash.
So far, Bitcoin's record in both areas is spotty. If you were one of the unfortunates who jumped into the market a year ago at $17,900, you're probably not feeling the love now that it's collapsed to $4,000. Similarly, if you've tried to use it to pay for gas or groceries, you've probably gotten blank stares from the cashier.
And so, at least until now, Bitcoin and its blockchain-based peers like Ethereum have made news mainly for their wild price fluctuations. But last month, Ohio Treasurer Josh Mandel announced the Buckeye State would become the first to accept Bitcoin for tax payments. For now, the program is limited to business filers, although they can use Bitcoin to pay for any type of tax. However, the state plans to expand the program to individuals down the road. (We're not sure if that will happen before or after Ohio finally gets a decent professional football team.)
Treasurer Mandel, who at age 41 is young enough to consider himself an honorary millennial, is a longtime fan of the currency. But last month's move is part of a broader effort to attract software engineers and tech startups to the state. "We're doing this to plant the flag in Ohio as a national and international leader in blockchain technology," said Mandel.
Ohio has set up a website (of course) at OhioCrypto.com to accept payments. They've engaged a company called Bitpay to process the transactions and convert the coins into cash. The fee for that service is just 1%, which is cheaper than using a credit card.
Will virtual currencies someday break through into the mainstream? At this point, who knows? (We're still waiting for the flying cars we saw on The Jetsons — although Rosie the robot housekeeper is almost here, and you can buy a watch to make video calls with Mr. Spacely for $279). And while Bitcoin itself is grabbing most of the cryptocurrency headlines, it may not be the ultimate winner. (Google wasn't the first online search engine, either.) If recent trends are any guide, Bitcoin will remain a punchline until suddenly, one day, it's not.
Here's the real bottom line of last month's news. The world is changing — and, like it or not, we have to change with it. That's true for tax professionals, too. The Flintstones may have been perfectly happy with someone telling them how much they owe. But the Jetsons want to know how to pay less. That's where we come in — and we're looking forward to helping you through 2019 and beyond!