Which Crypto Transactions Are Taxable for Businesses? (With Examples)

Tax Accounting

Which Crypto Transactions Are Taxable for Businesses? (With Examples)
As a business that conducts transactions in crypto, you must understand when you need to pay Bitcoin taxes or other cryptocurrency taxes.
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Business Crypto Accounting and Tax

What taxable transactions does your business need to track, and what are your corporate crypto tax obligations? This is an essential question for your business to answer.

If you’re wondering what transactions are considered a taxable event when it comes to company-owned cryptocurrency, Bitwave is here to help.

As a business that conducts crypto transactions, you must understand which are taxable. The IRS is serious about taxable crypto transactions, and it is your business’ obligation to properly track the cost basis of your digital assets, tokens, and cryptocurrencies, and to calculate the taxable crypto transactions. Fortunately, Bitwave, the only digital asset management, and business crypto tax software, offers solutions for all of these issues.

Here are some taxable cryptocurrency transactions that your business might encounter:

If your business paid for goods or services with cryptocurrency:

If so, crypto transactions that fall under this category may be deductible if it is a business expense. Bitwave’s bookkeeping platform allows you to set the cost basis, categorize, and reconcile this expense. The type of crypto transaction will determine whether or not it is deductible, and whether you need to file additional forms with the IRS. For example, if you paid an employee in cryptocurrency, this might need to be reported on a W-2. Alternatively, if your business paid a contractor in cryptocurrency, you might need to issue a Form 1099. Bitwave, which is designed to help handle all of your back-office needs, makes it easy to track which of your outgoing cryptocurrency transactions are deductible and which are taxable. With our deep two-way integration with accounting software like QuickBooks and Xero, you can easily reconcile these business expenses on your books.

If your business has been paid in cryptocurrency:

If your business has been paid in cryptocurrency, this is considered corporate revenue, and you must report it on your business's taxable returns. According to current crypto tax guidelines, you are obligated to treat your crypto income as taxable just as you would for your FIAT income.  

If your business is an ICO or token issuer:

Bitwave works with some of the largest (by market cap) ICOs and token issuers worldwide. The crypto accounting and tax treatment of issuing tokens are very complex, but even those transactions can be managed in an auditable way by using the Bitwave platform. Please email to discuss the ways in which we can help you to manage your ICO token tax liability tracking.    

If you are in the business of cryptocurrency mining:

If you mine cryptocurrencies, you need to recognize the token rewards that you receive as taxable business revenue. Bitwave will automatically sync the fair market value of the coins that you mine, allowing you to easily set your cost basis and track monthly profits. Remember that any mining-related expenses (like mining equipment and power) are not taxable and can be deducted. If you paid for those in a cryptocurrency, you can use Bitwave to track them.

If your business sold digital assets like Bitcoin or another cryptocurrency:

One of the simplest examples of taxable crypto transactions is if your business sells digital assets like Bitcoin or another cryptocurrency. If your company liquidated some Bitcoin, that transaction is considered a capital gain or loss. If your business sold the Bitcoin at a price higher than at which you acquired it, then that is considered a profit and it needs to be recognized as taxable capital gain. Alternatively, if you sold that digital asset at a loss, your business could take that as a taxable deduction. A crucial part of tracking your crypto tax liability is tracking your per coin cost basis. Bitwave has an automatic cost basis setting and tracking feature, so all of the information that you need in order to determine if a sale was a capital gain or loss is available in one simple workflow. Additionally, Bitwave has a complex crypto tax tracking solution that allows you to run different cryptocurrency tax scenarios such as LIFO, FIFO, Weighted Average, or Specific Identification. Remember to talk to your crypto tax advisor about which tax treatment is best for your business.

Here are some non-taxable crypto transactions for businesses:

Inter-company wallet transfers:

If your company transferred cryptocurrencies (Bitcoin, tokens like LINK, etc.) between two company-owned wallets, it is not a taxable transaction. However, it can be incredibly difficult to track these transactions without a digital asset management software platform like Bitwave, which correctly recognizes inter-company wallet transfers.    

If your business bought Bitcoin, ETH, or another cryptocurrency:

For these types of crypto transactions, you do not need to report your purchase to the IRS. If you purchase Bitcoin and just hold it, then you do not owe Bitcoin taxes on the transaction or on the currency itself (you will owe taxes when you sell that cryptocurrency). Therefore, it is imperative to track the fair market value of the cryptocurrency at the time when you acquired the digital asset. This is called setting your cost basis. If your business has many cryptocurrency or blockchain transactions, tracking your cost basis can make crypto bookkeeping extremely challenging. Thankfully, the Bitwave platform provides a simple, automated way to track your crypto cost basis.

About Bitwave

Bitwave is the leading cryptocurrency tax software for businesses and the only enterprise solution for tracking corporate crypto. Founded to address the difficulties of crypto accounting, we provide software for corporate management of crypto (crypto bookkeeping, crypto AR/AP, crypto tax tracking, DeFi ROI monitoring, and more).

Bitwave’s robust set of integrations makes it possible for you to have a single connected view of all of your company’s crypto assets.

Schedule a demo today!

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Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as tax, accounting, or financial advice. The content is not intended to address the specific needs of any individual or organization, and readers are encouraged to consult with a qualified tax, accounting, or financial professional before making any decisions based on the information provided. The author and the publisher of this blog post disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use or application of any of the contents herein.