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What business owners should know about crypto
What business owners need to know about crypto taxes is crucial for navigating the evolving landscape of digital assets. As cryptocurrencies become more integrated into mainstream financial systems, understanding their tax implications is essential. Business owners must recognize that cryptocurrencies are considered capital assets, and any transaction involving these digital assets is a taxable event. This includes selling crypto for fiat currency, trading one cryptocurrency for another, or using crypto to purchase goods and services. The IRS requires accurate reporting of these transactions to determine the fair market value at the time of the transaction, which impacts the capital gains tax owed.
Additionally, business owners should be aware of the distinction between short-term and long-term capital gains tax rates. If the digital assets are held for more than a year, they qualify for long-term capital gains tax rates, which are generally lower than short-term rates. However, if held for a year or less, they are subject to short-term capital gains tax rates, which can be as high as 37%.
Furthermore, crypto income, such as payments received in virtual currency or rewards from staking and mining, is considered ordinary income and must be reported as such. This income is subject to the standard income tax rate and may also incur self-employment tax if applicable.
Business owners must also be vigilant about maintaining comprehensive records of all cryptocurrency transactions, including dates, fair market value, and the cost basis of the digital assets. This meticulous record-keeping is vital for accurate tax reporting and can help minimize tax liability through potential deductions and credits.
Finally, staying informed about the latest IRS guidelines and tax laws related to cryptocurrencies is imperative. Tax regulations are continually evolving, and non-compliance can lead to significant penalties and interest. Consulting with a crypto tax expert or using reliable tax software can ensure that business owners meet all their tax obligations and remain compliant with IRS requirements. By understanding and adhering to these tax rules, business owners can effectively manage their financial interests and leverage the benefits of digital assets while avoiding potential pitfalls.
What is cryptocurrency?
Let's start by defining cryptocurrency—a type of digital currency. This virtual currency uses cryptography to secure transactions digitally recorded on a distributed ledger. The most widely used cryptos in the world today are Bitcoin (BTC) and Ethereum (ETC).
Crypto has value used for financial transactions, much like the coin and paper money. However, unlike conventional currencies like the U.S. dollar or the Philippine Peso, it operates on blockchain. This modern technology is known for its:
- Encryption: It is secured by cryptography.
- Immutability: It cannot be changed without being noticed.
- Decentralization: It isn't controlled by central authorities (governments or banks)
According to Statista, the global cryptocurrency market is projected to grow from $51.5 billion in 2024 to $71.7 billion by 2028, expanding at a compound annual growth rate (CAGR) of 8.62%.
Gary Hemming, Owner and Finance Director at ABC Finance, emphasizes the worldwide acceptance of cryptocurrency.
Hemming says, "Crypto has become a global currency—it's borderless, secure, and isn't tied down by any country's financial system. With blockchain technology, users can rely on transparency and security in every transaction, which is why we're seeing such rapid adoption worldwide."
Learn more about the cryptocurrency taxes as defined by the IRS in the next section.
Crypto taxes from the IRS point of view
From the Internal Revenue Service (IRS) point of view (POV), cryptocurrency is a virtual currency with an equivalent value in real currency. This means that crypto is a digital representation of value used as follows:
- Medium of exchange
- Unit of account
- Store of value
The IRS is aware that crypto is used for financial transactions, whether to pay for goods or services. Likewise, it is being stored as a form of investment. That's where the crypto tax comes into the picture since its value changes, resulting in a gain or loss.
Jeffrey Zhou, CEO and Founder of Fig Loans, highlights the value of cryptocurrency. "Crypto's appeal as both a transaction tool and an investment asset is clear. The IRS recognizing it as a taxable entity highlights its value, much like traditional currency—it's not just an investment but a powerful medium for everyday exchanges and a store of wealth."
Find out what the crypto tax rates are in the next section.
Tax rates for crypto transactions
In the United States, the IRS doesn't necessarily consider cryptocurrency a real currency, just like fiat money. However, the government agency regards crypto as a "property" for federal income tax purposes. This means that the IRS requires some crypto transactions to be taxed based on the taxable events.
Note that the crypto tax rates range from zero to 37%. These rates depend on the following:
- Specific crypto transactions - What types of transactions you've made
- Crypto holding duration - How long you've held your digital assets, whether short or long-term
- Total income - How much you've earned from your crypto transactions
Generally, the IRS classifies two types of taxes from crypto earnings as follows:
Capital gains tax
This tax is paid when you dispose of your cryptocurrencies and gain profits from them—hence, capital gains. Think of selling your crypto for fiat currency, trading one crypto for another (like tokens as a cryptocurrency trader), or using crypto for purchases. Since crypto is considered a capital asset, you must pay the tax for the profit you earn from the disposal.
The capital gains tax rates depend on the holding duration based on the general tax rules:
- Short-term capital gains: If you've held your digital assets for only a year or less, you'll have a short-term tax rate of up to 37%. That said, here are the tax rates for the 2024 tax year due in April 2025:
- Long-term capital gains: If you've held your digital assets for more than a year, you'll have a long-term tax rate between zero and 20%. Below are the tax rates for the 2024 tax year due in April 2025:
Note: Since non-fungible tokens (NFTs) are deemed collectibles, you can be taxed at 28%.
Crypto income tax
This tax is paid when you earn cryptocurrency as a form of income as opposed to capital gains after disposing of your crypto. However, this tax results from many different types of crypto transactions, whether receiving crypto payments, staking rewards, or mining transactions.
That said, here are some crypto income transactions:
- Crypto payments: You get paid in crypto for selling goods and/or services.
- Crypto staking: You earn rewards for validating transactions on the blockchain for accuracy and consistency.
- Crypto mining: You receive cryptocurrencies to create new value for digital currencies, the same way you print money for real currencies.
- Crypto airdrops: You have free tokens as part of a promotion or network update.
- DeFi interest: You earn returns by lending or staking in decentralized finance platforms.
- Referral bonus: You get crypto rewards for referring new users to platforms.
Note: The crypto income tax rate calculation is a breeze. Take the dollar value of the crypto you receive on a particular day. Then, determine the Federal or State Income Tax rate for your earnings.
Non-taxable crypto transactions
Keep in mind, however, that not all crypto transactions are taxable. Think of the following crypto-related activities:
- Buying digital assets using fiat money
- Transferring crypto between your wallets
- Sending crypto as a small gift
- Developing an NFT
- Donating cryptocurrency (tax-deductible)
Stephen Boatman, Principal at Flat Fee Financial, recommends working with crypto tax experts. He claims that you need to see which transactions are taxable to avoid non-adherence to tax obligations.
Boatman explains, "Crypto tax rules can be tricky to navigate, especially with so many different taxable events. Partnering with a crypto tax expert can help ensure you meet IRS requirements and not leave anything to chance with your tax obligations."
Understand the crypto tax requirements for regulatory compliance in the next section.
IRS reporting requirements for crypto taxes
Knowing the IRS reporting requirements, specifically for crypto taxes, is crucial for small business owners or crypto investors. This level of understanding should be part of your tax preparation for the year to ensure legal and regulatory compliance.
Don't worry; We'll make business tax filing pretty straightforward for you. That said, here are some of the crypto tax highlights you need to know:
General tax filing schedule
The U.S. tax year runs from January 1 to December 31—not a fiscal year. However, the tax due is every April 15. But if you're a U.S. expat, you have until June 15. Also, you can file for an extension until October 15 using the form 4868.
However, it's crucial to meet these deadlines to avoid penalties and interest on unpaid taxes. While an extension allows more time to file, it does not extend the deadline for paying any taxes owed. To prevent additional fees, estimate and pay your expected tax liability by the original April deadline.
Crypto tax reporting requirements
To report your cryptocurrency taxes, you must file it with your annual tax return. Start by preparing necessary documents and providing pertinent information, such as:
- Previously filed tax return copies
- Employer identification number (EIN) or Social Security number (SSN)
- Financial statements
However, you need to fill out a few other forms, such as the following:
- Form Schedule D and Form 8949 - To report for crypto disposals (whether gains or losses)
- Form Schedule 1 (1040) or Form Schedule C (1040) - To report for crypto income tax
Note: You have the option to file them in paper forms or through tax apps like TurboTax and TaxAct.
Gathering and organizing your documentation will simplify the reporting process and ensure compliance with IRS regulations.
Crypto tax filing steps
Filing your taxes for the previous year for the previous year doesn't have to be complicated. With the right steps, you can navigate the process smoothly.
To specifically report and pay for crypto taxes, follow these key steps:
- Compute your gains and losses from crypto transactions.
- Fill out Form 8949 to detail your disposals.
- Attach Form 8949 to Form Schedule D (1040).
- Report any crypto income on Form Schedule 1 (1040) under Additional Income and Adjustments to Income.
- Complete all forms to finalize your return.
- Pay your crypto taxes via the Electronic Federal Tax Payment System (EFTPS), IRS Direct Pay, or by mailing a check.
By following these steps, you can ensure accurate reporting and compliance with IRS requirements.
Ultimately, understanding this process can save you from potential penalties and keep your financial records in good standing.
New crypto tax reporting rules
The U.S. Department of the Treasury and IRS recently issued the Crypto Tax Regime for 2025. Here are some of the highlights you should know:
- 1099 forms required: In 2025, crypto brokers must file 1099 forms for customer sales and gains.
- Non-custodial platforms exempt for now: DeFi and non-hosted wallets will have separate rules later.
- Cost basis reporting in 2026: Brokers must track the original purchase price for crypto sales.
- Stablecoin & NFT limits: Stablecoin sales under $10,000 and NFT sales under $600 won't need reporting.
- Crypto real estate reporting: Real estate purchases with crypto require fair market value reporting by 2026.
- Anti-tax evasion goals: The rules aim to improve high-income compliance and curb tax evasion.
- Industry concerns: The rules may burden miners and developers who lack reporting tools.
- Safe harbor for asset basis: Taxpayers can allocate unused cost basis on assets held in wallets in 2025.
- No token classification: These tax rules don't classify tokens as securities or commodities.
Chris Aubeeluck, Head of Sales and Marketing at Osbornes Law, suggests staying up-to-date with the crypto tax guidelines for 2025. He claims that the laws and regulations governing cryptocurrency are ever-changing and ever-evolving.
Aubeeluck argues, "Crypto tax laws are constantly changing, and keeping up with the latest IRS guidelines is crucial. Staying informed helps you adapt and stay compliant, especially as the new reporting requirements for 2025 roll out."
Crypto tax compliance
Complying with the crypto tax requirements is crucial to avoid legal and financial implications. Think of getting hefty penalties and even facing business closure. That is because the IRS is capable of tracking crypto transactions through the following:
- KYC checks on major exchanges
- Banking info for fiat payments
- Withdrawal address records
- Custodial wallet tracking
Jarret Austin, Owner of Bankruptcy Canada, underscores the importance of legal and regulatory compliance for crypto taxes. "Staying compliant with crypto tax requirements isn't just a matter of paperwork—it's essential to protect your business and avoid significant penalties."
Austin adds, "With the IRS's advanced tools to track crypto transactions, such as KYC checks, fiat banking info, and custodial wallet monitoring, businesses need to take crypto taxes seriously to avoid risks that could impact their bottom line or, worse, lead to closure."
How Bench can help with crypto tax compliance
Cryptocurrency has become increasingly popular as a form of transaction in today's digital world. However, it's vital to stay informed about the crypto tax rates and IRS requirements for full compliance.
As a small business owner or crypto investor, consider the valuable pieces of information discussed above. Whether you accept crypto as a payment or engage in crypto mining/staking, understand and settle your tax obligations. By doing so, you can avoid legal and financial implications!
Taking charge of your business tax returns, including crypto transactions? It's best to hire tax filing services to ensure reporting accuracy, filing efficiency, and regulatory compliance. Get in touch with us today to see how we can help!
