If your small business accepts, spends, or invests in Bitcoin, Ethereum, or other cryptocurrencies, each transaction may carry federal tax consequences. Receiving cryptocurrency as payment can create taxable income, while selling or spending it later may generate a separate gain or loss.
Expanded digital-asset reporting makes accurate records especially important. Here’s what business owners should know about cryptocurrency taxes and reporting requirements for 2026.
How Does the IRS Treat Cryptocurrency?
For federal tax purposes, the IRS generally treats cryptocurrency as property rather than currency. The tax consequences depend on how your business receives, holds, and uses it.
The IRS uses the broader term “digital assets,” which includes cryptocurrency, stablecoins, and nonfungible tokens, commonly called NFTs. Stablecoins are designed to maintain a relatively consistent value, but their use can still create reportable transactions.
Visit the IRS digital assets resource center for guidance on federal reporting requirements.
Which Cryptocurrency Transactions Are Taxable?
Buying cryptocurrency with U.S. dollars and holding it generally does not create taxable income. However, the following activities generally require tax reporting:
- Receiving cryptocurrency as payment for goods or services.
- Selling cryptocurrency for U.S. dollars.
- Exchanging one cryptocurrency for another.
- Using cryptocurrency to purchase goods or services.
- Paying employees or contractors with cryptocurrency.
A transaction may be reportable even when it produces no gain or when your business does not receive an information return.
Receiving Cryptocurrency From Customers
When your business accepts cryptocurrency for goods or services, it generally reports gross income equal to the cryptocurrency’s fair market value in U.S. dollars when received.
That amount generally establishes the business’s initial tax basis in the asset. Basis is the amount used to calculate gain or loss when the cryptocurrency is later sold, exchanged, or spent.
Selling or Exchanging Cryptocurrency
A later disposition creates a separate tax calculation. Your business generally compares the amount realized with the cryptocurrency’s adjusted basis to determine gain or loss.
For example, assume your business receives cryptocurrency worth $1,000 for services and later sells it for $1,200. Ignoring fees and other adjustments, it reports $1,000 of service revenue when received and a separate $200 gain when sold.
Gain or loss is generally capital when the cryptocurrency is held as a capital asset. Assets held as inventory or primarily for sale to customers can receive different treatment.
Paying Business Expenses With Cryptocurrency
Using cryptocurrency to pay a business expense generally involves two separate considerations:
- Whether the expense is deductible or must be capitalized.
- Whether disposing of the cryptocurrency produces a gain or loss.
Paying with cryptocurrency does not automatically make the underlying purchase deductible. Normal business-expense rules still apply.
What Happens When Businesses Pay Workers With Cryptocurrency?
Paying workers with digital assets does not remove payroll or information-reporting obligations.
Cryptocurrency Payments to Employees
Wages paid in cryptocurrency are taxable to employees based on their U.S. dollar fair market value when received.
Employers generally must report those wages on Form W-2 and comply with federal income tax withholding, Social Security, Medicare, and federal unemployment tax requirements. Applicable federal and state wage-payment laws must also be considered.
Cryptocurrency Payments to Contractors
Independent contractors generally recognize income equal to the cryptocurrency’s fair market value when received. Self-employment tax rules apply as appropriate.
The paying business may need to issue Form 1099-NEC, depending on the applicable reporting threshold, recipient, and other requirements.
The business may also recognize a separate gain or loss when it transfers cryptocurrency to an employee or contractor.
The IRS provides additional explanations in its cryptocurrency tax FAQs.
What Are the Form 1099-DA Reporting Requirements?
Form 1099-DA, Digital Asset Proceeds From Broker Transactions, provides taxpayers and the IRS with information about certain digital-asset dispositions.
Reporting for 2025 Transactions
Beginning with transactions occurring in 2025, certain custodial brokers must report gross proceeds from digital-asset sales and exchanges. Those statements are furnished during the 2026 filing season.
Gross proceeds are not the same as taxable profit. Businesses must account for their basis and applicable transaction costs when calculating gain or loss.
Basis Reporting Begins for Certain 2026 Transactions
For transactions occurring in 2026, brokers must also report basis for certain covered digital assets, with statements generally furnished in 2027.
Covered assets generally include qualifying digital assets acquired after 2025 in an account where the broker provides custody. Assets acquired before 2026 or transferred into the account generally are noncovered, so mandatory basis reporting may not apply.
Special reporting methods and exceptions can also affect the information provided. Review the IRS Form 1099-DA instructions for details.
Form 1099-DA Does Not Replace Your Records
A broker statement may not contain everything needed to prepare your return. Missing basis does not automatically mean your basis is zero.
Reconcile broker statements with your records and report applicable transactions even when no Form 1099-DA is issued.
The One Big Beautiful Bill Act’s changes to Form 1099-K reporting for third-party payment networks do not replace the separate Form 1099-DA requirements.
Must Businesses Report Digital-Asset Receipts Over $10,000?
The Infrastructure Investment and Jobs Act expanded the statutory cash-reporting rules to include certain digital-asset receipts.
However, under IRS transitional guidance, businesses are not required to file Form 8300 solely because they receive more than $10,000 in digital assets until implementing regulations are issued.
Existing Form 8300 requirements for qualifying cash receipts continue to apply. Businesses should distinguish digital-asset receipts from cash receipts and monitor future guidance.
See IRS Announcement 2024-4 for the transitional rules.
What Cryptocurrency Records Should Your Business Keep?
Maintain records that show:
- Transaction date and time.
- Type and number of digital-asset units.
- U.S. dollar fair market value and valuation source.
- Acquisition cost and adjusted tax basis.
- Sale proceeds or value received.
- Transaction fees.
- Business purpose.
- Wallet or exchange account involved.
- Supporting invoices, receipts, and broker statements.
Keep business and personal transactions clearly identified so income, expenses, and asset dispositions are reported correctly.
Document Transfers Between Your Own Wallets
Moving cryptocurrency between wallets or accounts owned by the same taxpayer generally is not taxable. However, cryptocurrency used or withheld to pay transfer fees can produce a gain or loss.
Record both sides of each transfer to avoid treating it as a sale or losing track of basis.
Review Which Units You Are Selling
When you own units acquired at different prices, identifying the units sold affects your gain or loss.
For broker-held assets sold after December 31, 2025, specific identification generally requires timely instructions to the broker and supporting records. Without adequate identification, default ordering rules apply.
Review the IRS digital-asset transaction FAQs before relying on a particular basis-identification method.
Prepare Your Cryptocurrency Records Before Year-End
Before closing out 2026, reconcile digital-asset transactions across your accounting system, wallets, exchanges, and payment processors. Confirm that customer payments, worker compensation, asset dispositions, and transfers are recorded consistently.
THF’s Business Tax Services can help you evaluate the tax treatment of your transactions and identify reporting requirements.
Get Cryptocurrency Tax Guidance From THF
Accepting or using cryptocurrency can add complexity to your business taxes. Clear records and timely planning can help you prepare accurate returns and avoid reporting errors.
Contact THF to review your cryptocurrency transactions, reconcile your records, and prepare for current digital-asset tax requirements.
