Crypto in Your Business — Tax Rules Every Home-Business Owner Must Know (2025)
More home-business owners are receiving crypto as payment or investing in digital assets.
But the IRS treats cryptocurrency as property, not currency — which creates unique rules for income, deductions, basis tracking, and reporting.
1️⃣ When Crypto Becomes Business Income
When a client pays you in cryptocurrency, the IRS treats it as business income on the date received.
You must report the fair market value (FMV) at the time you received the crypto.
- ✔️ FMV added to Schedule C as income
- ✔️ Subject to income tax + self-employment tax
- ✔️ Creates a tax basis for future gains/losses
💡 Example
A client pays you 0.02 BTC for work.
BTC price that day = $60,000
✔️ Income reported = $1,200
2️⃣ Basis & Recordkeeping Rules
Your basis = FMV on the day you received the crypto.
This basis is used to calculate capital gain or loss when you later sell or swap it.
Important: Exchanges may not provide accurate basis info — you must track it yourself.
3️⃣ Paying Vendors or Contractors with Crypto
When you pay someone in crypto, the IRS treats it as if you sold the crypto first.
- ✔️ Deduction = FMV of crypto on payment date
- ✔️ You must report capital gain or loss on the crypto used
- ✔️ Form 1099-NEC may be required
💡 Example
You bought Ethereum for $2,000.
Later you pay a contractor with ETH worth $2,400.
✔️ Deduction = $2,400
✔️ Capital gain = $400
4️⃣ Mining, Staking & Rewards
IRS treats mining, staking, and reward income as business income when performed as part of your business.
- ✔️ FMV on receipt = taxable income
- ✔️ Subject to self-employment tax
- ✔️ Hardware, electricity, hosting fees may be deductible
5️⃣ Capital Gains When You Sell Crypto
Selling, swapping, or spending crypto triggers a taxable event:
- ✔️ Long-term gains for assets held over 12 months
- ✔️ Short-term gains taxed at ordinary income rates
- ✔️ Losses deductible up to $3,000
2025 Update: IRS is finalizing Form 1099-DA for exchanges, increasing crypto reporting enforcement.
6️⃣ Deductible Crypto-Related Expenses
You may deduct ordinary and necessary costs related to crypto activity tied to your business.
- ✔️ Wallet fees
- ✔️ Trading platform fees
- ✔️ Hardware wallets
- ✔️ Mining equipment (may require depreciation)
- ✔️ Electricity used for mining
- ✔️ Research tools & crypto tax software
7️⃣ Real Examples
💡 Example 1 — Paid in Crypto
Designer receives $800 USDC for a project.
✔️ $800 reported as Schedule C income.
✔️ Basis = $800.
💡 Example 2 — Paying for Supplies
You use crypto worth $500 to buy business software.
✔️ Deduction = $500
✔️ Report gain/loss from the crypto used.
💡 Example 3 — Mining
You mine $1,200 worth of tokens in 2025.
✔️ $1,200 reported as business income
✔️ Equipment + electricity may be deductible
8️⃣ IRS Reporting & Documentation
Required Records:
• FMV at time of receipt
• Basis and holding period
• Wallet addresses (if needed)
• Exchange transaction history
• Mining/staking logs
• 1099-DA (when applicable)
Crypto transactions are high-audit items.
Clean records and accurate FMV logs are essential for IRS compliance.
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QuickBooks Online — Small Business Accounting & Bookkeeping
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TurboTax Self-Employed — For Freelancers & Home-Business Tax Filing
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- ① Is Your Home Business Really a Business?
- ② Do You Have a Profit Motive?
- ③ Can You Deduct Your Startup Costs?
- ④ Operating Expenses You Can Deduct
- ⑤ Section 179 & Bonus Depreciation
- ⑥ Home Office Deduction
- ⑦ The QBI 20% Deduction
- ⑧ Car & Local Travel Expenses
- ⑨ Out-of-Town Travel Rules
- ⑩ Inventory Rules
- ⑪ Employees vs. Contractors
- ⑫ Health Insurance & Medical Deductions
- ⑬ Retirement Plan Deductions
- ⑭ Additional Business Deductions
- ⑮ Crypto in Your Business
- ⑯ Recordkeeping & Accounting
- ⑰ Spouses in Business Together
- ⑱ How to Avoid an IRS Audit