Colorado taxes cryptocurrency: what you need to know
Colorado is one of the first US states to legalize both bitcoin and initial coin offerings (ICOs). As such, companies operating in the state are likely to be more familiar with cryptocurrencies than their counterparts in other states.
However, Colorado does not currently tax cryptocurrencies as a form of income. This means that individuals who own cryptocurrencies and use them to purchase goods and services are not subject to state or federal income taxes.
In June 2018, the state introduced a new cryptocurrency tax law that would levy a 3.9% excise tax on the gross proceeds of all cryptocurrency transactions. However, the law has yet to be enacted, and it is uncertain whether it will be given the go-ahead by the Colorado State Legislature.
If you are looking to start or invest in a cryptocurrency business in Colorado, you should be aware that there may be additional compliance requirements that you must meet. For example, you may need to register with the state as a money transmitter, and you may need to obtain a license from the financial regulator.
How Colorado's tax laws apply to cryptocurrency
Cryptocurrency is treated as property for tax purposes in Colorado. Bitcoin, Ethereum, and other cryptocurrencies are all considered property for tax purposes. This means that you must pay taxes on your cryptocurrency holdings just like you would with any other type of property.
For example, if you own $10,000 worth of bitcoin, you would have to report that income on your yearly tax return and pay taxes on that amount. Likewise, if you sell your bitcoin for $10,000, you would also have to report that income on your tax return and pay taxes on that sale.
There are a few exceptions to this rule. For example, cryptocurrency is not considered property for tax purposes if it's used to purchase goods and services. Additionally, cryptocurrency held as part of a security or investment is not subject to taxation.
What types of taxes apply to cryptocurrency in Colorado?
In Colorado, taxes on cryptocurrency transactions apply to gain or loss from sales and exchanges of cryptocurrency. Colorado imposes a 6.25% state sales tax on all retail sales, which includes cryptocurrency transactions. In addition, the state imposes a 2.9% excise tax on the sale of certain digital products and services, including cryptocurrency transactions.
How to report cryptocurrency taxes in Colorado
In Colorado, taxes on cryptocurrency are assessed at a state level. The Colorado Department of Revenue (DOR) maintains a list of cryptocurrency-related tax forms and instructions.
To report cryptocurrency taxes in Colorado, you will need to complete the following steps:
1. Complete Form 8949, Cryptocurrency Tax Return.
2. Complete Schedule C, Capital Gains and Losses.
3. Report your cryptocurrency income and losses on your income tax return.
What happens if you don't pay taxes on cryptocurrency in Colorado?
If you do not pay taxes on cryptocurrency in Colorado, the Colorado Department of Revenue may penalize you with a $10,000 penalty per year.
Penalties for not paying taxes on cryptocurrency in Colorado
In Colorado, not paying taxes on cryptocurrency is a misdemeanor. If you are found guilty of not paying taxes on cryptocurrency, you could face up to 6 months in jail and/or a $1,000 fine.
How to avoid paying taxes on cryptocurrency in Colorado
Cryptocurrency is considered property for tax purposes, so you will pay taxes on it just like you would any other type of property. You will need to report your cryptocurrency income and expenses just like you would with any other type of income.
Is it possible to get around paying taxes on cryptocurrency in Colorado?
It is possible to get around paying taxes on cryptocurrency in Colorado. For example, one option is to treat cryptocurrency as a property instead of a currency. This would mean that the cryptocurrency would be taxed as capital gains rather than income. Another option is to use a cryptocurrency trading account to avoid paying capital gains taxes.