Cryptocurrency Tax Rules for Small Businesses
The IRS treats cryptocurrency as property, not currency, under Notice 2014-21. This means every transaction involving cryptocurrency has potential tax consequences. For small businesses, the most common scenarios are accepting crypto as payment for goods or services, paying contractors or employees in crypto, holding crypto as an investment, and mining or staking crypto. Each of these creates different tax obligations. The IRS has significantly increased crypto enforcement, and starting with 2025 tax returns, crypto exchanges will be issuing Form 1099-DA (Digital Asset Proceeds) to both taxpayers and the IRS.
Crypto tax rules for businesses:
Accepting crypto as payment:
- Income is recognized at the fair market value (FMV) of the crypto on the date received
- Report as ordinary business income on Schedule C or Form 1120-S
- The FMV becomes your cost basis in the crypto
- When you later sell or convert the crypto, the difference between sale price and basis is a capital gain or loss
Paying contractors in crypto:
- The FMV of the crypto on the payment date is the payment amount
- You must issue a 1099-NEC for $600+ in annual payments (using the USD value)
- The contractor reports the FMV as income
- Your business deducts the FMV as a business expense
- If the crypto appreciated since you acquired it, you also recognize a capital gain on the disposition
Paying employees in crypto:
- Must withhold income tax, Social Security, and Medicare on the FMV
- Report on W-2 like any other wage payment
- Payroll taxes are calculated on the USD FMV
Mining crypto:
- Mining income is recognized at the FMV of the crypto on the date mined
- Reported as self-employment income (subject to SE tax) if mining is a trade or business
- Mining expenses (equipment, electricity, internet) are deductible business expenses
- Mining equipment depreciates over 5 years (bonus depreciation eligible)
Staking rewards:
- Per Revenue Ruling 2023-14, staking rewards are taxable as income when received
- FMV at receipt is the amount of income
- Subject to SE tax if staking is a trade or business
Capital gains on selling crypto:
- Short-term (held 1 year or less): taxed as ordinary income
- Long-term (held more than 1 year): taxed at 0%, 15%, or 20%
- Specific identification method is allowed (sell highest-cost lots first)
- FIFO is the default if no specific identification is made
- Wash sale rules currently don’t apply to crypto (but proposed legislation may change this)
Record-keeping requirements:
- Date of acquisition and cost basis (FMV at acquisition)
- Date and price of every sale or disposition
- Transaction ID or hash for verification
What does a crypto-accepting business’s tax look like?
How does the IRS track cryptocurrency transactions?
Starting in 2026, centralized cryptocurrency exchanges are required to report transactions on Form 1099-DA, similar to how brokerages report stock trades on Form 1099-B. The IRS also uses blockchain analytics firms (Chainalysis, CipherTrace) to trace on-chain transactions and match them to known wallet addresses. John Doe summonses issued to major exchanges (Coinbase in 2016, Kraken in 2021, Circle in 2023) have already provided the IRS with account-holder data for millions of users. Every federal income tax return now includes a question on the first page asking whether you received, sold, exchanged, or otherwise disposed of any digital assets during the year. Answering “no” when you had taxable crypto transactions is treated as a false statement on a tax return, which can increase penalty exposure.
What is the tax treatment of staking rewards and mining income?
Staking rewards and mining income are taxable as ordinary income at fair market value on the date received (Revenue Ruling 2023-14). For miners, this is also subject to self-employment tax if mining constitutes a trade or business. The cost of mining equipment is a deductible business expense (Section 179 or depreciation), and electricity costs are deductible against mining income. When you later sell the staked or mined tokens, you recognize capital gain or loss based on the difference between the sale price and your basis (the fair market value at which you originally recognized income). The holding period for capital gains starts on the date the tokens are received into your wallet.
Related guides:
How are cryptocurrency staking rewards and airdrops taxed?
Staking rewards are taxed as ordinary income at fair market value when you receive them, based on IRS Revenue Ruling 2023-14, which treats staking rewards as income upon receipt regardless of whether you sell them. Airdrops are also taxable as ordinary income at the time you gain dominion and control over the tokens, valued at fair market value on the date of receipt. Your cost basis in staking rewards and airdropped tokens equals the fair market value you reported as income, so if you later sell them, you only pay capital gains tax on any appreciation above that basis. Tracking cost basis across multiple wallets, exchanges, and DeFi protocols requires dedicated crypto tax software because the IRS expects specific identification or FIFO lot tracking for every disposition.
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Yarik Yarosh, CPA. "Cryptocurrency Tax Rules for Small Businesses." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-cryptocurrency-digital-asset-taxes
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.