Cryptocurrency Taxes for Small Business Owners: Accepting Crypto, Mining Income, and Capital Gains
The IRS treats cryptocurrency as property, not currency, under Notice 2014-21. Every transaction involving cryptocurrency is a taxable event: receiving crypto as payment, selling crypto, exchanging one crypto for another, and earning crypto through mining or staking. Small business owners who accept cryptocurrency, mine as a business, or hold crypto in their business must report these transactions on their tax returns.
Accepting cryptocurrency as payment: The business reports the fair market value of the cryptocurrency at the time of receipt as gross income. A web developer who receives 0.5 Bitcoin for a $25,000 project reports $25,000 in business income (the FMV at the time of receipt). The cost basis of the received crypto is the FMV at receipt. If the developer later sells the Bitcoin for $30,000, the $5,000 gain is a capital gain (short-term if held under 1 year, long-term if held over 1 year).
Mining cryptocurrency: Crypto mining income is reported at the FMV of the coins when received. If the mining is a trade or business (not a hobby), it’s self-employment income reported on Schedule C, subject to SE tax (15.3%). Mining expenses (electricity, hardware, internet, cooling) are deductible on Schedule C. Mining hardware qualifies for Section 179 immediate expensing.
Selling or exchanging cryptocurrency: Selling crypto for USD or exchanging one crypto for another triggers a capital gain or loss. The gain/loss is calculated as: sale price minus cost basis. Short-term gains (held under 1 year) are taxed at ordinary income rates. Long-term gains (held over 1 year) are taxed at 0%, 15%, or 20%.
The reporting requirement: Form 1040 asks directly: “At any time during the tax year, did you receive, sell, exchange, or otherwise dispose of any digital asset?” The answer must be “Yes” if any crypto transaction occurred, including receiving crypto as payment.
How does a business track crypto transactions?
Crypto tax software (CoinTracker, Koinly, TaxBit) automates the tracking and calculation of gains/losses across exchanges and wallets. For businesses that accept crypto regularly, these tools are essential for accurate reporting.
What about staking income?
Staking rewards (earned by holding and validating transactions on proof-of-stake networks) are taxable income when received, at the FMV at the time of receipt. If staking is part of a trade or business, the income is reported on Schedule C and is subject to SE tax. If staking is a personal investment activity, the income is reported as other income on Schedule 1.
How are long-term and short-term capital gains taxed differently?
Short-term capital gains (assets held one year or less) are taxed at ordinary income rates, which can be as high as 37%. Long-term capital gains (assets held more than one year) are taxed at preferential rates: 0%, 15%, or 20% depending on your taxable income. The 3.8% net investment income tax (NIIT) applies on top of both rates for taxpayers with modified AGI above $200,000 ($250,000 married filing jointly). The holding period is critical for tax planning: selling an asset one day before the one-year mark costs you the rate differential, which can be 20+ percentage points. Installment sales under IRC 453 can spread the recognition of gain over multiple years.
How do I calculate cost basis for cryptocurrency transactions?
The IRS allows specific identification, FIFO (first in, first out), and HIFO (highest in, first out) methods for determining which units you sold and their cost basis. Specific identification gives you the most control: you designate exactly which units (by date and price acquired) you are selling, allowing you to optimize for gains or losses. If you do not specifically identify units, the IRS defaults to FIFO, which sells your earliest-acquired units first. Cost basis includes the purchase price plus any fees or commissions paid at acquisition. For crypto received as payment for services, the basis is the fair market value on the date received (which was also reported as income). Transfers between your own wallets are not taxable events, but you must track the original cost basis through the transfer. Exchange fees on trades are added to the cost basis of the acquired crypto or subtracted from the proceeds of the sold crypto.
Related guides:
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Cryptocurrency Taxes for Business Owners: Accepting Crypto, Mining, and Capital Gains Reporting
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Cryptocurrency Taxes for Business Owners: Accepting Crypto, Mining, and Capital Gains Reporting
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Yarik Yarosh, CPA. "Cryptocurrency Taxes for Small Business Owners: Accepting Crypto, Mining Income, and Capital Gains." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-cryptocurrency-taxes
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.