Recent news has come out that Colorado residents will be able to pay their taxes in crypto. It has too much hype for too little payoff. After digging through the details, the plan actually sounds pretty terrible, if not an outright business-government scheme.
As the title says the Colorado would be able to pay personal income tax, business income tax, severance tax and withholding tax in crypto. But here's the catch. It is done through PayPal. And Paypal charges a service fee of $1 plus 1.83% of the payment amount. At this point, you are WAY better off by converting your money to fiat and paying your taxes. Your crypto-to-fiat conversion fees shouldn't come anywhere close to that with any half-way decent exchange.
I am very skeptical as this is the same Paypal that took almost 2 years to add deposits and withdrawals to personal wallets after initially adding crypto services. It seems to be that one of the most basic features of crypto of having full ownership of funds in a complete user-controlled wallet was intentionally delayed to squeeze as much profit as possible. This is might be a step in crypto legalization/regulation but it is not a good one.
Also, cryptocurrency generally isn't seen as taxable by itself. According to the IRS, you pay taxes on cryptocurrency if you sell or use your crypto in a transaction. This is because you trigger capital gains or losses if its market value has changed. This then means if you use crypto to pay tax, you also have to pay tax on that crypto. "Exchanging cryptocurrency for government-issued currency" is highlighted in particular as a taxable event and the pay-tax-with-crypto is settled in USD. I have no idea how exactly this issue would be ironed out in practice.
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