Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old-school business practices and the traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful modern solutions to help enhance your company’s growth. I’m your host, Dave Cain.
Dave: As we embark on the 2019 tax season, the state of Ohio is set to become a case study in the area of using Bitcoin to settle your business’s tax bill. Here to talk us through what this change means for businesses throughout the state, and how one would actually go about making a tax payment with cryptocurrency is Melane Howell, CPA, a regional expert with Rea & Associates in the area of cryptocurrency. Welcome back to unsuitable, Melane.
Melane Howell: Hey, Dave.
Dave: You know, the last time, you’ve been a frequent guest, the last time that you were on unsuitable as a guest, I remember two things, one, Bitcoin was trading at about 6,000 bucks and your favorite game of choice was Twister. I think things have changed since then, Bitcoin is down in the 3,000 range, but probably Twister’s still the game of choice. Let’s say, we get …
Melane: Thanks for bringing that up, nice reminder.
Dave: Yeah. Now, is that game a weekend game, or how’s that?
Melane: Usually.
Dave: Usually, okay.
Melane: Usually, yeah. It’s the weekend game, and then during the week we play Mr. and Mrs. Potato Head.
Dave: Okay, all right. A little Operation in between there, Uno?
Melane: It can happen.
Dave: You got to be a lot of fun to hanging out with.
Melane: Yeah. No Candyland.
Dave: Let’s talk about this breaking bitcoin news. And Ohio will be accepting bitcoin payments for business taxes, and it’s the first state that we’re aware of in the good old US to follow this rule and allow this. So what’s going on?
Melane: So the politicians were super excited about being on the forefront of technology so they really pushed this through. There were a few other states that were trying to obviously this race to be the first but Ohio won. Maybe it’s we were a little bit behind on the whole, on some other issues that recently passed.
Dave: They were out in front.
Melane: We got this with the bitcoin. Currently it’s only for businesses. Individuals aren’t here yet in order to pay their tax but businesses can pay 23 different types of taxes through ohiocrypto.com.
Dave: Okay, we’re going to break that down a little bit but let’s go back. The Ohio Society of CPAs worked very closely with the state of Ohio on various tax issues in making Ohio a very business friendly state and I think this is one of those areas where Ohio is out in front, being a business friendly state.
Melane: Certainly. Some people have been complaining about the drop in the market with bitcoin and we can talk about that a little bit later but this makes it valuable. This lends itself to some value. The fact that maybe it’s not the market’s doing that great but it does have some value in that you can pay your tax with it. Who doesn’t like that?
Dave: Right. Before we go any further we have a birthday to celebrate. It’s bitcoin’s birthday.
Melane: It is. Bitcoin is 10.
Dave: 10? Bitcoin has been around for 10 years.
Melane: Double digits. 10 years. Who would have thunk it.
Dave: That’s hard to believe.
Melane: I know. I know. We going to sing Happy Birthday?
Dave: No.
Melane: No, we’re just going to toast our Busch Lights.
Dave: I don’t think so. Bitcoin which is one form of many types of cryptocurrency can be used with state of Ohio to pay your taxes and I think you mentioned it could be 23 different types of taxes.
Melane: Correct. Take of instance you could pay your sales tax with bitcoin. You could pay your withholding tax with bitcoin. You could pay your PAT which is like petroleum tax or your commercial activity tax with bitcoin. On their website, it’s ohiocrypto.com, they are using BitPay to handle its payments. It’s a US based company out of Georgia and it’s for payments only. Meaning if you make a mistake or you need a refund or something, they’re only taking payments. They are not issuing refunds yet with bitcoin.
Melane: However, there’s also some theory that you can only process a certain number of blocks in a certain amount of time, per second and that’s a leap. There’s so much activity within the market that they’re concerned that the computing power may not be enough to properly process the demand all at one time. Again, lots going on there. I think that there’s some issues with electricity usage in some areas with computing power taking down power grids and all that. Again, there’s challenges in the landscape of all of this, that’s for sure.
Dave: I was thinking, maybe the fad has passed but as we mentioned, bitcoin is 10 years old so it’s not a fad. It’s just maybe getting a little bit more play in the last several months with some miners getting involved with it and maybe somebody thinking about making some money. Maybe that’s passing.
Melane: That could. I know we have a small hobbyist here in our office that was a miner for a bit and he told me he’s unplugged those just because they were …
Dave: He went unplugged.
Melane: They weren’t making any money.
Dave: New definition of unplugged.
Melane: They have somewhat become obsolete. Again, they’re just moving so fast.
Dave: It’ll come back.
Melane: That the technology is rapidly advancing.
Dave: It’ll come back. The state of Ohio accepting bitcoin as a form of currency to pay tax and liability, I think that’s a very positive statement in a way that hey, if you feel comfortable paying your tax that way there’s other goods and services and it’s already started. I think maybe other stuff being purchased through bitcoin is on the rise.
Melane: Right. And then think about that too on the opposite end, the IRS because it is somewhat anonymous, the IRS is wondering who these individuals are that actually have bitcoin. Well if you’re paying your tax with bitcoin, you’re obviously pretty comfortable probably with crypto and you may have other crypto. It may be even that that is a way to, this sounds bad but may be a way for them to at least be aware of who you are and kind of if you have crypto or not. That’s not to say it’s not for the novice user. I’ve been on the website. It’s certainly easy.
Dave: Is it?
Melane: You don’t have to be a previous crypto investor or even know how it works in order to pay your tax with cryptocurrency or with bitcoin currently. That’s the only type they’re taking.
Dave: That’s the only, yeah, okay.
Melane: But, it’s nice that they’re obviously going in that direction. They’re looking to the future. I know that Cleveland obviously has this thing if you want some homework, it’s called Blockland and they’re looking to create a little tech community itself up in that area and are really focusing on blockchain technology and then resulting crypto.
Dave: Let’s get into the good stuff. Again, the taxability of these transactions I think as we begin to find out that the IRS is making inquiries on the bitcoin. They actually had some rulings or clarification on how cryptocurrency would be treated on your tax return. It is not a tax free transaction, is that correct? Am I correct?
Melane: That’s correct, right. I know that in 2017 if you had some gains I think there was some suggestion that you could use the like kind exchange rules for that. While the like kind exchange rules went away in 2018 for anything with the exception of for everything but real estate, even in 2017, if you wanted to do a like kind exchange for crypto I think the theory behind that is that while we may think of all crypto as being like or the same as one another, it’s really not. To be conservative we’re obviously are recommending that the like kind exchange rules not be used for anything.
Dave: Not be used. And it won’t be going forward as well but again, every time there’s a bitcoin or crypto transaction, it is a taxable event.
Melane: It is.
Dave: Could be a gain.
Melane: Could be a gain, could be a loss.
Dave: Could be a loss. And it’s ordinary.
Melane: Well it depends. If you’re just using it as an investment and you’ve held it for over a year then it would be a long term capital loss subject to …
Dave: Some limitations et cetera.
Melane: The limitations. You can net them with your other gains but then if your loss cannot, your taxable loss that you take on your return cannot exceed $3,000 and then you carry the rest forward. Just like you would with any other stock loss. If you have an ordinary loss, and this gets a little bit more complicated and probably outside of this conversation but if you earn cryptocurrency in the course of let’s say, somebody can pay you as far as like wages or anything with crypto, that you would get that and it’s subject to the same W2 reporting requirements. And then let’s say you go out and you sell it and at a loss, if you have not held it for a year, then obviously it would be treated as an ordinary loss.
Dave: Well you’ve been running around at least the Columbus market giving presentations and discussions and speeches on cryptocurrency. You’ve become quite a expert in the field in central Ohio.
Melane: I don’t know about that. I try. We have a little roadshow going.
Dave: You got a little roadshow.
Melane: It’s been pretty nice.
Dave: To the listeners in our podcast community, if they need a speaker, give us a buzz and we’ll put you in touch with Melane. Very informative presentation. But what your presentation does I think is give the listeners a sense of it’s okay. Sense of security. It’s okay. It’s becoming more than norm than it was before.
Melane: Oh absolutely and I’m excited that Ohio is the first to do this.
Dave: I think it’s kind of cool too.
Melane: I know. Sometimes we think of it as like, oh it’s going to be like New York or California and yet, here we are. It’s Ohio. It’s pretty exciting in a kind of geeky kind of way.
Dave: Yeah, yeah. And again, we talked about this early, I want to make sure I got this right because I don’t have a lot of facts on that which is not normal for unsuitable, we just kind of let it rip sometimes. The state of Ohio is not holding cryptocurrency at all. They’re moving it all and as soon as they receive it. There’s no, they’re not holding it as an investment.
Melane: I don’t know the exact answer to that do you?
Dave: Yeah, I don’t think so, they’re not.
Melane: They’re not investing it.
Dave: They’re not investing.
Melane: I’m assuming, here’s the thing, here’s what I thought or here’s what I heard.
Dave: Look, I know more about this than you, can I be on the roadshow with you?
Melane: Yes you could. Yes. You bring the beer.
Dave: All right.
Melane: Here’s my thought is that they may be invested in it in that I have heard a lot about how banks they don’t like cryptocurrency but they’re all invested in it. Meaning the state of Ohio probably would be smart to be invested in it. Are they using the exact crypto that you use to pay your tax in order to then turn around and invest in it? I don’t know. But, I wouldn’t be surprised if they were invested in it in some level just separate from this.
Dave: I think we got to stay tuned on that because we’ll see but my understanding is they would move that crypto on very quickly because of the volatility. Let’s talk about the volatility. Again, that’s kind of beyond the scope here, beyond our expertise but my goodness we touched, it went from over 6K for one bitcoin to half of that, 50% drop in market. I don’t know about that.
Melane: I know. It’s a little scary.
Dave: It is a little scary.
Melane: Yeah, I know.
Dave: Why would I do that? Why would I think about that?
Melane: Why would you buy low to then maybe sell?
Dave: I wouldn’t buy at 6K like you bought at 6K.
Melane: I know. Yeah. It’s pretty ugly.
Dave: But now maybe at 3K what the heck?
Melane: Thanks Dave for rubbing that in.
Dave: Well you know, was either that or Twister. And you didn’t even want to talk about Twister.
Melane: I’m in this for the long haul so hopefully just like they say with your stocks, get in it, stay in it. Long term hopefully you’ll do all right. That’s what I’m hoping for.
Dave: As you’re running around the state speaking on this, what are you hearing as far as what people are buying with cryptocurrency? There’s stories out there, what else could we buy?
Melane: You can buy something on Overstock. You can buy a car of Craigslist. You can spend it on Expedia. Microsoft takes crypto.
Dave: Amazon yet?
Melane: Amazon does not that I know of. Subway does.
Dave: Subway?
Melane: Yes. Go out and buy a sandwich.
Dave: I thought I saw Starbucks was going to get or maybe you told me that.
Melane: Yes.
Dave: ‘Cause you tell me a lot of things.
Melane: I know.
Dave: I would take it with a grain of salt sometimes. But yeah, Subway. The purchases, the opportunities to purchase more stuff if you will, can I convert that to just straight cash? Hey, I need some cash for the weekend. I’m going to the bitcoin or the crypto ATM, I’m going to convert it to cash.
Melane: At the crypto ATM, I have not used those as of yet. We do have someone here, another associate that markets.
Dave: That uses crypto.
Melane: Oh yeah.
Dave: Let’s get him on.
Melane: He’s went to the bitcoin ATM. And he’s pulled out bitcoin, he’s purchased bitcoin and then obviously stuck the little code in his pocket.
Dave: Is that his code wallet?
Melane: To use it.
Dave: That’s his code wallet.
Melane: That’s his cold storage ’cause it’s in his. A hot wallet would be like on your, see, you know what you’re talking about. He’s done that. Whether you can actually put your crypto in and then an ATM spit cash back out at you, I don’t know.
Dave: We’ll find that out.
Melane: I was going say, I don’t know. I’ll have to do some research over the weekend.
Dave: Our guest today’s been Melane Howell with Rea and Associates. The in house expert if you will on cryptocurrency and discussing with us how to pay your business’ tax bill with bitcoin. It’s a bit tricky but as we’ve kind of tested it out, it’s doable and if you need any information give us a call. We’ll put you in touch with Melane and get that transaction going for you. Thanks again for joining us Melane.
Melane: Thank you.
Dave: Very informative. Curious to find out how many businesses will take advantage of this option. Listeners, are you considering paying your tax bill with bitcoin this year? Hey, let us know. We’d love to hear from you. You can email us at reacpa.com, let us know if you plan on taking advantage of this payment option. And if you enjoyed today’s episode and I’m sure you did, let us know. Like it, comment on it or share it with your colleagues and don’t forget to check out videos of our podcast on YouTube. Until next time, I’m Dave Cain, encouraging you to loosen up your tie and think outside the box.
Disclaimer: The views expressed on unsuitable on Rea Radio are our own and do not necessarily reflect the views of Rea and Associates. The podcast is for informational and educational purposes only and is not intended to replace the professional advice you would receive elsewhere. Consult with a trusted advisor about your unique situation so they can expertly guide you to the best solution for your specific circumstance.