Cryptocurrency Taxes for Business Owners: Accepting Crypto, Mining, and Capital Gains Reporting

Cryptocurrency tax rules for business owners:

Accepting crypto as payment:

• The FMV of the cryptocurrency at the time of receipt is ordinary business income
• Reported on Schedule C (sole proprietor) or the applicable business return
• Subject to income tax and self-employment tax
• The business’s basis in the crypto received is the FMV at receipt
• If the crypto is later sold, any gain or loss is a separate taxable event

Holding crypto as an investment:

• Gain or loss is recognized when the crypto is sold, traded, or used to purchase goods/services
• Held 1 year or less: short-term capital gain (ordinary income rates)
• Held more than 1 year: long-term capital gain (0/15/20% rates)
• Reported on Form 8949 and Schedule D
• Cost basis tracking is essential (FIFO is the default if not specifically identified)

Mining crypto:

• Mining income is recognized at the FMV of the crypto when received (mined)
• If mining is a business activity: reported on Schedule C, subject to SE tax
• If mining is a hobby: reported as other income, not subject to SE tax, but no expense deductions beyond mining income
• Electricity, equipment, and hosting costs are deductible if mining is a business
• Mining equipment qualifies for Section 179

Crypto-to-crypto trades are taxable events. Trading Bitcoin for Ethereum is a sale of Bitcoin (capital gain or loss) and a purchase of Ethereum. Every trade must be tracked and reported.

Staking rewards and airdrops:

• Staking rewards are income at FMV when received (Rev. Rul. 2023-14)
• Airdrops are income at FMV when the taxpayer has dominion and control