In most countries, crypto taxes for businesses follow the same framework as receiving income in crypto – personal or business income taxes on its fair market value when received.
But there is a lot more to it than just that.
As crypto is growing relentlessly and penetrating the mainstream dialogue around finance and economics, more and more businesses are looking to integrate cryptocurrency to reach new customers, eliminate middlemen, and pay lower processing fees.
In a survey conducted by Data platform PYMNTS in collaboration with Bitpay, it was found that 46% of merchants that participated in the survey accept cryptocurrency as a mode of payment.
Despite its meteoric rise in popularity, crypto is still new, and the regulations around it still need more clarity, especially with taxes. Many people are still unclear about the tax implications of accepting and using cryptocurrencies as a business.
But worry not. In this guide, we’ll explain how crypto taxes for businesses work, how you can save taxes and report them, and much more.
How is Crypto Taxed in General?
Before we explain crypto taxes for businesses, let’s quickly look at how crypto is taxed in general. Even though different countries have different tax laws around crypto, there are some common frameworks and parallels consistent throughout most countries.
Firstly, crypto is treated as property, or some variation of it, in most countries, except for Canada, where crypto is treated as a commodity for tax purposes.
From here on, we can roughly divide crypto taxes into two categories: capital gain taxes and income taxes.
Whenever you sell, swap, spend, or in other words, dispose of your crypto, you’ll pay capital gain taxes (assuming you make a profit).
On the other hand, if you get paid in crypto for selling goods or services, you’ll pay income taxes on the fair market value of the received crypto. This also includes staking and mining rewards.
Explaining Crypto Taxes for Businesses
Just so we’re on the same page, when we talk about crypto taxes for businesses, we’re referring to the tax implications of receiving crypto as a mode of payment for selling your goods and services.
Based on this definition, several crypto transactions fall in the same bucket as crypto business income, which are:
- Receiving salary or compensation in crypto (May include full-time, part-time, and freelancing jobs)
- Selling goods and services for crypto. For example – a gift shop (goods) or marketing agency (services) accepting crypto as payments.
- Selling NFTs as a creator.
- Completing tasks or surveys to earn airdrops or free crypto.
- Mining crypto to earn mining rewards.
- Staking crypto to earn staking rewards.
- Playing crypto games to earn crypto.
All these transactions attract income taxes. As mentioned before, you’ll pay income tax rates on the fair market value (at the time of acquisition) of the crypto you earned. Income tax rates vary for different countries. In the US, it ranges from 10%-37%, depending on your tax bracket. Check out this really cool list of countries by personal income tax rates.
You can also deduct any business expenses you may have from your total taxable income to reduce your tax bill. You can check out this complete guide from the IRS on deducting business expenses.
Double Taxation for Businesses
You’ll pay double taxes on your crypto business income. How?
Once when you receive it (income taxes). And once, when you liquidate, meaning sell, swap or spend it (capital gain taxes), which you most likely will if you’re treating it as your business income and not a personal investment.
To elaborate, if the price of your crypto has risen from its FMV at the time of acquisition, you’ll incur a gain and pay capital gain taxes. On the contrary, if the price of your crypto drops, you’ll incur a loss, which you can then offset against other gains.
The best way to avoid paying double taxes on crypto business income is to liquidate your crypto for fiat currency instantly after receiving them. While this may eliminate any potential capital gain taxes or losses you might incur, it’ll also eliminate any potential gain you might have realized.
The best course of action will depend on the kind of business you’re running, your business strategies, investment strategies and preferred tax-saving strategies. We suggest you hire a crypto tax professional to get the best results.
How to Report Crypto Taxes for Businesses
Whether you incur gains or not, you must report all your crypto sales and acquisition on your tax return before the tax deadline in your country. Not doing so can lead to you to hefty fines.
The following is a non-exhaustive list of how to report your taxes in different countries:
- United States: Report your income on Schedule 1 (Form 1040) or Schedule C (Form 1040) before 17 April (usually the deadline is 15 April, though)
- United Kingdom: Report your crypto business income on SA100 (Box 17 of your Self-Assessment Return) through this online portal before 31 January (31 October if filing taxes through postal).
- Spain: Declare your assets on Modelo 100 form and file your taxes here.
- France: Fill out Formulaire n°2042, Formulaire n°2086 and Formulaire n°2042 C and file your taxes here.
- Austria: File your taxes on FinanzOnline before 30 June.
- Denmark: File your taxes here before 1 May.
- Netherlands: File your taxes here before 1 May.
- Sweden: Declare all your crypto income on Section D of the K4 tax form and file your taxes here.
- Malaysia: File your taxes on e-Daftar.
- South Africa: File your taxes through the online portal before 24 October.
- Romania: File your taxes using this form before 25 May.
Record keeping is a crucial part of filing your taxes. Not only is it important for your own sake to manage and calculate your transactions, gains, and income, but most tax authorities, like the IRS, HMRC, or CRA, demand you provide adequate records of transactions to support your tax report.
Common Mistakes to Avoid
Failure to report income and sales – It’s a common crypto tax myth that reporting crypto sales where you didn’t make a profit is not necessary. That is not true. You must report all your income and sales, regardless of whether you made a profit or not. As mentioned, failing to do so can result in penalties and fines.
Failure to keep adequate records – Most tax authorities, like the IRS, HMRC and CRA, require businesses to keep detailed records of all their crypto transactions, including the dates, the amount of cryptocurrency exchanged, the fair market value of the crypto at the time of the transaction and the purpose of the transaction.
Keeping records as a business using multiple wallets and exchanges with hundreds and thousands of transactions every month is practically impossible. So, instead of risking a potential crypto tax audit, use Bitcoin.Tax for efficient and accurate tax reporting.
Misunderstanding tax laws – The regulations around crypto are very ambiguous at the moment, leading people to misunderstand tax laws and make mistakes. Hopefully, this guide helps clear all your confusion around crypto taxes for businesses.
Nonetheless, it’s still advisable that you consult a tax professional, especially if you’re running a business.
The regulations around crypto are still developing, and businesses that accept crypto as a mode of payment must understand their tax implications. Our aim with this guide was to simplify these tax implications and draw a clear path for businesses to understand, calculate, and report their crypto business income.
What is the tax implication of accepting cryptocurrency as a business?
When businesses receive cryptocurrency as payment for goods and services, they need to pay income tax on the fair market value of the received crypto at the time of acquisition.
How can businesses reduce their tax bills on crypto income?
Businesses can deduct any business expenses they may have from their total taxable income to reduce their tax bill.
Is double taxation applicable to crypto business income?
Yes. Businesses will pay double taxes on their crypto business income, once when they receive it (income taxes) and once when they liquidate it (capital gain taxes). The best way to avoid double taxation is to liquidate your crypto for fiat currency instantly after receiving them.