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Considering cryptocurrency for your business? Here’s what small business owners should know

Cryptocurrency might not be part of your business today, but if you’re considering accepting Bitcoin or another digital asset, paying someone with cryptocurrency or holding it as an investment, there are some tax rules you’ll want to understand first.

For federal tax purposes, cryptocurrency transactions can create reporting and recordkeeping requirements that are easy to overlook. The IRS also continues to receive more information about digital-asset transactions through expanded reporting requirements.

Here’s what small business owners should know.

First, what counts as a digital asset?

You’ve probably heard of Bitcoin and Ethereum, but the IRS uses the broader term digital assets. This includes:

• Cryptocurrency, such as Bitcoin and Ethereum
• Stablecoins, which are designed to maintain a more consistent value
• Nonfungible tokens, or NFTs

Digital assets can be bought and sold through online platforms, exchanged between users and stored in digital wallets.

Not every business uses cryptocurrency, but some businesses accept it as payment, use it to purchase goods or services, pay employees or contractors with it, or hold it as an investment.

Buying and holding cryptocurrency generally isn’t taxable by itself

If your business buys cryptocurrency with U.S. dollars and simply holds it, that purchase generally doesn’t create taxable income.

The tax consequences generally come when you sell, exchange or use the cryptocurrency.

For federal tax purposes, the IRS treats cryptocurrency as property, not currency. That means using cryptocurrency can create a separate taxable transaction, even when you’re using it to pay a normal business expense.

Accepting cryptocurrency as payment

If your business accepts cryptocurrency in exchange for goods or services, you generally must report the income based on the cryptocurrency’s fair market value (FMV) in U.S. dollars when you receive it.

That dollar amount generally becomes your tax basis in the cryptocurrency.

For example, suppose a customer pays your business with cryptocurrency worth $1,000 at the time you receive it. You would generally report $1,000 of business income, and that $1,000 generally becomes your basis in the cryptocurrency.

If you later sell, exchange or spend that cryptocurrency, you generally have another tax event. You’ll calculate a gain or loss based on the difference between its value when you dispose of it and your adjusted tax basis.

Your basis can be affected by things such as acquisition costs, transaction fees, certain blockchain events and other tax adjustments.

Using cryptocurrency to make purchases

Here’s an important point that can be easy to miss:

Using cryptocurrency to pay a business expense can create a taxable gain or loss.

Because the IRS treats cryptocurrency as property, spending it is generally treated as a disposition of the asset.

For example, if you bought cryptocurrency for $500 and later use it to purchase $800 worth of business equipment, you could have a $300 taxable gain on the cryptocurrency transaction. You may also have a separate business deduction for the equipment, assuming the expense otherwise qualifies.

If the cryptocurrency’s value has gone down instead, the transaction could result in a tax loss.

Paying employees with cryptocurrency

Businesses that pay employees with cryptocurrency still have to follow the usual payroll rules.

For federal tax purposes, cryptocurrency paid as wages is taxable to the employee and generally must be reported on Form W-2. Federal income tax withholding and payroll taxes generally apply based on the cryptocurrency’s fair market value on the date it is paid.

Businesses also need to consider applicable federal and state wage-payment laws.

Paying contractors with cryptocurrency

Cryptocurrency payments to independent contractors and other service providers can also have tax and reporting consequences.

The usual self-employment tax and information-reporting rules apply, and the business may need to issue Form 1099-NEC.

There can also be a separate gain or loss for your business if the cryptocurrency changes in value between the time you received it and the time you use it to pay the contractor.

If your business isn’t in the business of buying and selling cryptocurrency, that gain or loss generally is treated as a capital gain or capital loss, with the tax treatment depending in part on how long you held the asset.

The IRS is receiving more information about digital-asset transactions

Digital-asset reporting requirements have expanded, making accurate records increasingly important.

Federal business tax returns, including Forms 1065, 1120 and 1120-S, now include a question about digital-asset transactions. Businesses must answer the question and report applicable transactions even if they don’t receive an information return from a broker or other third party.

There are also new broker reporting requirements.

Beginning with transactions in 2025, certain custodial brokers must report gross proceeds from digital-asset sales and exchanges on Form 1099-DA. Beginning in 2026, they must also report the basis for certain covered digital assets.

However, a Form 1099-DA doesn’t replace your own recordkeeping. In particular, basis generally won’t be reported for assets acquired before 2026 or for assets transferred into the broker’s account.

The One Big Beautiful Bill Act did not change the basic federal tax treatment of digital assets. Its changes to Form 1099-K apply to third-party payment networks and don’t replace the separate Form 1099-DA reporting rules.

What about receiving more than $10,000 in cryptocurrency?

Under the Infrastructure Investment and Jobs Act of 2021, businesses will eventually be required to report certain digital-asset receipts exceeding $10,000 on Form 8300.

However, until the IRS issues regulations implementing this change, businesses aren’t currently required to file Form 8300 solely because they receive more than $10,000 in digital assets.

Keep detailed records

If your business uses cryptocurrency, good recordkeeping is especially important.

Keep records showing:

• The date of each transaction
• The number of digital-asset units involved
• The value in U.S. dollars
• Your tax basis
• Transaction fees
• The business purpose of the transaction
• Transfers between digital wallets

Wallet-to-wallet transfers should also be documented. Without good records, a transfer between your own wallets could potentially be mistaken for a taxable transaction.

As the IRS receives more information from brokers and other third parties, keeping your records organized can also make it easier to reconcile your transactions and address discrepancies.

Considering cryptocurrency for your business?

You don’t have to be a cryptocurrency expert to understand the tax side of using digital assets. But if you’re considering accepting cryptocurrency, using it for purchases, paying employees or contractors with it, or holding it as an investment, it’s worth understanding the tax consequences before you get started.

As year end approaches, review your 2026 digital-asset transactions and reconcile your records with statements from brokers and payment processors.

Digital-asset tax rules can also change. Congress is considering legislation that could affect certain digital-asset tax rules, so staying current is important.

Thinking about adding cryptocurrency to your business? Talk with us first. We can help you evaluate the tax implications of your transactions, review your records and understand the current reporting requirements.

You can find your local Padgett office here!

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