Part 5: Crypto for Small Business — Tax Rules Every Owner Must Know in 2025

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🏢 Crypto for Small Business — Tax Rules Every Owner Must Know in 2025

More small businesses than ever now accept crypto — whether through direct wallet payments, payment processors, or peer-to-peer transactions.
But crypto used in business is taxed differently than personal investing.
In 2025, business owners must understand income rules, deductions, basis tracking, and how crypto affects bookkeeping and IRS reporting.



📖 Table of Contents

1️⃣ Crypto as Business Income

When a business receives crypto for products or services, the IRS treats it as ordinary business income.
The value is measured at the time of receipt in USD.

Crypto income must be reported on:

  • Schedule C (sole proprietorships)
  • Form 1120 (corporations)
  • Form 1065 (partnerships)
  • Form 1120-S (S-Corporations)

Example:

You charge $500 for design work and get paid in USDT.
→ You must report $500 of business income.

2️⃣ Deductible Business Expenses Paid with Crypto

When a business uses crypto to pay expenses, it can deduct the USD fair market value of the expense — but spending crypto also triggers a capital gain or loss.

Example:

You pay a contractor $1,000 in crypto.
→ $1,000 is a deductible business expense
→ BUT you must also calculate a gain/loss on the crypto used.

Crypto payments must be backed by detailed receipts showing value at the time of transaction.

3️⃣ Recordkeeping & Fair Market Value Requirements

Businesses must keep detailed records of:

  • Date received or paid
  • Fair market value in USD
  • Wallet address and transaction hash
  • Purpose of the transaction (income or expense)

Failure to maintain FMV records is a common IRS audit trigger for crypto-active businesses.

4️⃣ Capital Gains When Businesses Spend or Exchange Crypto

Businesses face capital gains rules just like individuals.
Whenever a business spends crypto, it is considered a taxable disposal.

Gain/Loss = Value Used – Business Cost Basis

Example:

  • You received 1 ETH as business income worth $2,100 (basis = $2,100)
  • You later use it to buy equipment worth $2,600

→ Capital gain = $500

5️⃣ Accounting Methods & Bookkeeping Tips

Businesses may apply the same accounting methods used for investment crypto, such as:

  • FIFO (default)
  • Specific Identification (requires detailed tracking)

Important bookkeeping tools for businesses:

  • Crypto tax software with business support
  • Wallet labeling and tagging by purpose
  • Separate business and personal wallets

Tip:
Never mix personal and business crypto transactions — it creates audit risks and invalid deductions.

❓ Frequently Asked Questions

Q1. Can a business accept crypto directly?
Yes — through wallets or processors, but income must be reported at FMV.

Q2. Are gas fees deductible for business crypto?
Yes — if related to business activity.

Q3. Does staking in a business wallet count as income?
Yes — rewards are ordinary income to the business entity.

📚 EA Tax Guide Kindle eBooks

This section contains Amazon affiliate links.

*Amazon affiliate links included. As an Amazon Associate, I earn from qualifying purchases.

Recommended Crypto Tax Resources:

📚 Crypto Taxation Series (2025)

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