By Watson Lewis-Rodriguez • 12 min read
Getting paid in crypto? Running a crypto-related business? Here's everything you must know about business taxes.
The IRS distinguishes between investing and doing business. This matters a lot for taxes.
Buy, hold, sell occasionally. Capital gains rates. Not a business.
Regular activity, multiple transactions, primary income. Ordinary income rates.
If you receive crypto as payment for services, it's ordinary income. The USD value when you receive it is your taxable income.
Example: Client pays you 1 ETH for consulting. ETH was worth $3,000 when you received it.
= $3,000 ordinary income (report on Schedule C)
If you're in business for yourself, crypto income is self-employment income. You pay both income tax AND self-employment tax (15.3%).
Mining rewards are taxable as ordinary income at fair market value when received. Expenses reduce your taxable income.
If you stake professionally (run validators), staking income is business income. Expenses include: equipment, electricity, software, professional fees.
Running a crypto business? These expenses may be deductible:
Main form for self-employed. Report income and expenses here.
Calculate and pay SE tax (Social Security + Medicare).
Your personal return. Includes Schedule C and SE.
If clients pay you $600+ in crypto, they may send this.
Give to clients so they can issue 1099s.
As a business owner, you don't have withholding. You likely need to pay quarterly estimated taxes:
Due Dates:
Keep records of everything:
Consider forming an entity for liability and tax reasons:
Simplest. You are the business. Full liability.
Protects personal assets. Can be single-member (taxed as sole prop) or multi-member.
Can save on SE taxes. More paperwork. Best for profitable businesses.
Disclaimer: This article is for educational purposes only and does not constitute tax or legal advice. Consult with qualified professionals for your specific situation. Tax laws vary by state and change frequently.
