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Where Can You Pay Taxes With Bitcoin?

Short-term Bitcoin traders have an acute interest in how they can dodge paying taxes on their Bitcoin, especially on capital gains. Others see it as a tool for evading taxation altogether, including income tax.

These strategies are usually quite difficult in practice and therefore NOT recommended.

However, a more interesting question – relevant to law-abiders and long-term HODLers – is how we can use our Bitcoin to help pay our taxes. Directly.

This prospect is essential for people who store most of their net worth in Bitcoin or are paid directly using cryptocurrency. Then, holders could easily use their holdings to pay their debts without incurring capital gains tax after converting their holdings to dollars when taxes are due.

While most governments are still too cautious or uneducated about Bitcoin to enable this, some have already opened this avenue to their citizenry.

Here are three locations where you can directly pay your taxes using your Bitcoin.

Canada

On the whole, Canada is a remarkably crypto-friendly country. For example, the nation’s regulators were responsible for approving the Purpose Bitcoin ETF in early 2021, marking the first in the whole world. Since then, multiple similar products have launched in enormous thanks to evident industry standards that the Canadian Securities Administrators provide.

Certain municipalities in Canada allow their residents to pay property taxes using Bitcoin. The first regions to enable it was Richmond Hill and Innisfil – two cities north of Toronto. However, even Ontario’s capital has explored the option but has yet to implement it.

In April 2019, Innisfil entered a one-year pilot with Coinberry – a famous Canadian crypto exchange – to facilitate property tax payments using Bitcoin. The town’s mayor Lyn Dollin said at the time that theirs is a town “not afraid to try new things”.

Due to the volatile nature of cryptocurrencies, the town refrains from actually touching Bitcoin in the payment process. Instead, Coinberry converts taxpayers’ holdings into dollars before depositing them into the town’s account.

However, if the price of Bitcoin drops during the conversion process, the onus is on the payer to cover the difference.

Innisfil, Ont., estimates it saves $8M yearly using Uber as alternative to public transit | CBC News
Lyn Dollin. Source: CBC

Miami

While he hasn’t launched the initiative yet, the Mayor of Miami has plans to let city residents pay fees and taxes in Bitcoin.

Francis Suarez is a highly enthusiastic Bitcoiner. He has repeatedly stated his intention to make Miami the world’s center for cryptocurrencies, competing with NYC mayor Eric Adams. Months ago, the mayor became the first US politician to accept a paycheck in Bitcoin, using Strike’s “Pay me in Bitcoin” service.

Interestingly, if things go according to plan, crypto may allow city residents not to pay taxes at all. The city is currently mining a notable new cryptocurrency called “Miamicoin”. As Miamicoin’s price appreciates over time, the city may reserve and claim a particular portion of those coins.

So far, cryptocurrency mining has created millions of dollars worth of value for the city. Ideally, Suarez wants the money raised by Miamicoin to supplement the taxation of citizens.

Nevertheless, Suarez plans to make Bitcoin a central component of Miami going forwards. He currently wants to allow government employees to be paid in Bitcoin and add the asset to the city’s balance sheet. Due to its non-inflationary properties, he’s even suggested that it has the power to “eradicate communism” worldwide.

Francis X. Suarez | Fortune
Francis Suarez. Source: Fortune

El Salvador

El Salvador has gone further than any nation in the world to integrate Bitcoin with its economy. On September 7th, 2021, the primary cryptocurrency officially became legal tender within its borders. That means people can legally use Bitcoin to pay debts or taxes in El Salvador. Meanwhile, they can stay free from capital gains tax upon conversion to dollars.

While the law initially drew scrutiny from international organizations and citizens alike, President Nayib Bukele remains dedicated to the experiment. Besides mocking the International Monetary Fund for criticizing his Bitcoin law, he’s continued to add Bitcoin to El Salvador’s coffers at every opportunity. As a result, the concern about future law modifications, especially around taxation, becomes unnecessary.

Like Miami’s use of Miamicoin, El Salvador has also undertaken a multi-year project to build a BTC-funded taxless city. The country will soon issue bonds for building city infrastructure, buying Bitcoin, and mining it using latent geothermal energy across the landscape. If successful, reluctant taxpayers can expect to find another libertarian paradise in El Salvador.

El Salvador Bonds Fall After Judges, Attorney General Ousted - Bloomberg
Nayib Bukele. Source: Bloomberg

Conclusion

The opportunities to pay taxes with Bitcoin remain slim, but municipalities and nation-states alike are still experimenting with the idea.

The state of Ohio tried it for a while but suspended the related program in October 2019 due to legal issues. Meanwhile, Arizona is deliberating a bill to make Bitcoin legal tender in the same fashion as El Salvador.

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If Bitcoin continues gaining trust as a safe-haven asset, governments worldwide might add it to their balance sheets. Consequently, they will also likely permit its use as a means of tax payment.

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