Cryptocurrency Tax Rules for Businesses: Accepting Crypto, Mining, and Digital Asset Reporting

The IRS has been clear since Notice 2014-21 that virtual currency is treated as property for federal tax purposes. This means the general tax principles that apply to property transactions apply to cryptocurrency transactions. For businesses, the implications are wide-ranging: accepting crypto as payment triggers ordinary income at FMV, paying employees or contractors in crypto triggers payroll tax and 1099 reporting, mining crypto generates ordinary income at the moment of receipt, and every disposition (sale, exchange, use as payment) triggers a capital gain or loss calculation. The reporting burden is significant because each transaction requires tracking the date acquired, the cost basis (FMV at acquisition), the date disposed, and the proceeds (FMV at disposition). With the new Form 1099-DA reporting beginning in 2026 for centralized exchanges, the IRS is building enforcement infrastructure to identify unreported crypto income. Businesses that transact in digital assets need to understand the rules now, not after they receive a notice.

How do crypto transactions affect your taxes?

What cost basis method should I use for cryptocurrency?

The IRS allows specific identification or defaults to FIFO (First In, First Out) if no method is elected. With specific identification, you choose exactly which lot of coins to sell at the time of the transaction, and you must document the identification contemporaneously (a note in your records identifying the specific coins by acquisition date and cost). This lets you sell your highest-cost lots first (HIFO) to minimize current capital gains, or sell lots held over a year first to get long-term capital gain rates. If you don’t specifically identify, FIFO applies automatically, which often produces the highest gain because your earliest (usually cheapest) coins are deemed sold first. Once you choose a method for a particular exchange or wallet, you should apply it consistently. Crypto tax software like CoinTracker or Koinly can track lot-level basis across multiple wallets and exchanges and apply your chosen method automatically.

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:

• Tax Implications of Accepting Cryptocurrency Payments, Paying Employees in Crypto, and Business Use of Digital Assets

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.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.