Crypto taxes are confusing.
Seriously, who came up with this stuff?
Between new IRS reporting requirements, wallet-by-wallet tracking mandates, capital gains rules… Businesses who own cryptocurrency can’t catch a break.
But here’s the good news:
Learning how to report crypto taxes doesn’t have to be painful. While tedious, proper tax preparation and financial reporting for crypto businesses is possible.
In this article, we cover:
- What Are Crypto Capital Taxes for Business?
- IRS Reporting Rules Every Business Owner Should Know
- Capital Gains vs Ordinary Income: What’s the Difference?
- Helpful Tips to Legally Reduce Taxes Owed
- Tax Mistakes Businesses Should Avoid
What Are Crypto Capital Taxes for Business?
Cryptocurrency is taxed as property by the IRS. It’s not considered currency.
Which means anytime your business sells crypto, trades crypto, or uses crypto to make a purchase… You’ll likely need to report it on your taxes. That’s where understanding crypto capital taxes comes in handy.
Essentially, anytime there’s an increase in value between the time you purchase crypto and when you sell it, you’re going to be taxed on your gains.
Likewise, if you sell crypto for less than you bought it, you can claim that loss against your gains.
You might be thinking:
“We get it, crypto isn’t immune to taxes. But how hard can this stuff really be?”
Consider this:
According to CoinLaw, 89% of cryptocurrency users admit to being at least somewhat confused by at least one part of their crypto tax reporting. Once you start exchanging crypto across multiple wallets, cryptocurrencies, and businesses… It’s easy to lose track of your transactions.
Whether you’re selling Bitcoin for fiat currency or swapping Ethereum for Dogecoin… Understanding capital gains tax as it pertains to crypto will be incredibly important.
Two items that will affect your tax liability are:
- Length of time the asset was held (short term vs long term holdings)
- How you acquired the cryptocurrency (purchase, mining, staking, payment)
Businesses are required to keep meticulous records of each and every transaction. Not only will this make tax season a breeze, but it can also help you stay compliant if the IRS decides to audit your company.
IRS Reporting Rules Every Business Owner Should Know
Let’s talk IRS rules real quick.
Starting in January of 2025, crypto exchanges and digital asset brokers will be required to report sales transactions on a new tax form called 1099-DA. This means exchanges are going to hold businesses more accountable should they fail to comply.
Previously, businesses were allowed to pool all of their digital assets across all wallets and exchanges. Now with stricter reporting requirements…
Each wallet and exchange account must be tracked independently according to IRS rules.
Revenue Procedure 2024-28 opened a one-year guidance for taxpayers who need time to adapt to these sweeping changes. But businesses who fail to implement new software and strategies now could come crying to us when tax season 2025 rolls around.
Businesses are now required to answer a digital asset question on their tax returns according to the IRS. If you’ve exchanged crypto in any way shape or form and you fail to check “Yes” your business could be flagged for auditing.
Capital Gains vs Ordinary Income: What’s the Difference?
Just because crypto transactions are taxed as property, doesn’t mean all income is taxed equally.
Capital gains tax is incurred when you sell, trade, or use crypto to pay for goods or services. Crypto that’s held as an investment is subject to capital gains taxes when sold.
The length of time the asset was held determines its tax rate.
Short term capital gains are assets held for less than one year.
Long term gains are investments held longer than one year.
For most taxpayers, short term gains are taxed as ordinary income. Meaning you’ll be taxed between 10%-37% based on your income bracket.
Long-term capital gains come with a much lower tax rate of either 0%, 15%, or 20% depending on your yearly income.
Ordinary income tax is incurred when cryptocurrency is received via:
- Payment for goods or services
- Mining crypto
- Staking crypto
- Receiving free tokens from an airdrop
In these instances, fair market value of the crypto at the time of receipt is considered income and taxable to your business. The fair market value also serves as your cost basis for future capital gains tax calculations.
If your business accepts crypto as payment for goods, you’ll need to record the fair market value of the cryptocurrency at the time of payment. This creates a taxable event for your business (income to report) and a cost basis for when that crypto is sold.
Helpful Tips to Legally Reduce Taxes Owed
As you can see there are plenty of opportunities to reduce your crypto tax liability.
Let’s review a few smart strategies to pay less in taxes.
Tax-loss harvesting is the practice of selling cryptocurrency that is at a loss prior to year end in order to offset gains on investments that have appreciated.
Because cryptocurrency is not considered a security… Crypto tax-loss harvesting isn’t subject to wash-sale rules. Meaning a business can sell crypto, claim the loss on their taxes… AND buy crypto back the next day.
Other great strategies include:
- Holding crypto assets for longer than one year when possible
- Timing asset sales to fall in years where your business earns less income
- Donate crypto to charity to avoid capital gains taxes and create a deduction
- Keep meticulous records using crypto tax software
Tax Mistakes Businesses Should Avoid
By far one of the biggest crypto tax mistakes we see business make is not reporting all transactions.
Every trade, purchase, or swap is considered a taxable event.
If you buy Bitcoin and trade it for Ethereum that’s two taxable events.
Simply putting crypto you own into a different wallet doesn’t get you off the hook either.
Business owners who accept cryptocurrency payments:
- Fail to report small transactions
- Forget to track cost basis
- Don’t realize staking rewards are taxed as income
- Neglect to track crypto received from airdrops
- Combine personal crypto transactions with their businesses
Just landed a lucrative client that paid you in Bitcoin? Congratulations! Don’t forget about it when tax season comes around.
Fines for cryptocurrency tax evasion increased 33% in 2024 according to CoinLaw. It’s only a matter of time before the IRS catches these careless folks.
If you’re a business owner with questions about crypto taxes, working with a CPA who specializes in both crypto and business taxes is highly recommended.
Wrapping Things Up
Unless you plan on stopping all crypto transactions with your business, crypto tax reporting isn’t going away.
What will change are the ways you prepare and keep records of your transactions. The more proactive you are with your crypto tax obligations, the better positioned you’ll be to avoid costly mistakes and penalties.
Let’s review:
- Cryptocurrency is taxed as property in the eyes of the IRS
- New IRS reporting guidelines went into effect starting in 2025
- Short-term crypto capital gains are taxed as ordinary income
- Crypto rewards from mining and staking count as ordinary income
- Tax-loss harvesting is a great way to pay less in taxes
Here at Travala.com we’re committed to providing up-to-date information on cryptocurrency tax guidelines. As more countries pass legislation for cryptocurrency reporting, we’ll make sure you’re in the know.
Don’t let your guard down. Once crypto reporting requirements are in place, it’s safe to say the IRS won’t look the other way just because you forgot to report $20 worth of crypto.
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