Crypto and Taxes: What Individuals and Business Owners Need to Know

Investors may look to crypto as an alternative currency that shields holders from inflationary risk. However, the IRS generally treats crypto as property, not currency, which means transactions can trigger tax consequences even when no cash changes hands.

Whether you hold crypto personally, use it in a business, or both, understanding the basics can help you avoid surprises and make better decisions.

Crypto Is Taxable, Even When It Doesn’t Feel Like It

A common misconception is that crypto is only taxable when converted to cash. In reality, many crypto transactions are taxable events. Here are some examples:

• Selling crypto for U.S. dollars

• Trading one cryptocurrency for another

• Using crypto to purchase goods or services

• Receiving crypto as payment

• Distributing cryptocurrency from your business to yourself (under some entity structures)

In each case, the transaction is generally treated as a sale of property, potentially triggering a gain or loss.

Crypto Taxes for Individuals

For individuals, crypto is typically treated as an investment asset.

Common taxable events for individuals

• Selling crypto for cash

• Trading one coin or token for another

• Using crypto to make personal purchases

How it’s generally taxed

• Gains are usually treated as capital gains

• Holding period matters:

  • Short-term (held one year or less)

  • Long-term (held more than one year)

• Capital losses may offset gains, subject to limitations

Common individual mistakes

• Assuming small transactions don’t count

• Forgetting about crypto-to-crypto trades

• Poor recordkeeping across wallets and exchanges

• Ignoring crypto activity until tax filing season

Best practice:

Individuals should track crypto activity consistently and understand that even “casual” use can have tax implications.

Crypto Taxes for Businesses

When crypto is used in a business context, the tax treatment often changes.

Common taxable events for businesses

• Accepting crypto as payment from customers

• Paying vendors or contractors in crypto

• Selling or exchanging crypto

How it’s generally taxed

• Crypto received as payment is typically ordinary income

• Income is measured at fair market value on the date received

• Subsequent changes in value can create capital gains or losses when sold

Additional business considerations

• Payroll and contractor reporting issues

• Sales tax treatment (where applicable)

• Separation of personal and business wallets

• Integration with bookkeeping and financial reporting

Best practice:

Crypto activity should be recorded just like any other business transaction: accurately, consistently, and in real time.

Why Recordkeeping Is Critical for Everyone

Crypto tax problems are likely to come from missing or incomplete records.

Best practices include:

• Tracking dates, values, and transaction types

• Maintaining wallet and exchange histories

• Separating personal and business activity

• Reconciling crypto transactions regularly

Without proper documentation, even legitimate positions become difficult to support.

Common Crypto Tax Pitfalls We See

Across both individuals and businesses:

• Assuming crypto activity is “off the radar”

• Ignoring small or experimental transactions

• Mixing personal and business crypto use

• Relying solely on exchange summaries

• Waiting until year-end to address issues

These issues often lead to surprises — not because taxes were avoided, but because they weren’t planned for.

How Crypto Fits Into a Broader Tax Strategy

Crypto shouldn’t be handled in isolation. It can affect:

• Estimated tax payments

• Cash flow planning

• Entity-level reporting

• Owner compensation and distributions

Best practice:

Crypto activity should be integrated into your overall tax and financial strategy, whether it’s personal, business-related, or both.

Practical Takeaways

If you’re involved with crypto:

• Assume transactions are taxable unless proven otherwise

• Keep clean, consistent records

• Understand whether activity creates income, gains, or both

• Address crypto proactively, not at filing time

Need Help Making Sense of Crypto and Taxes?

Crypto tax rules continue to evolve, and the right approach depends on how crypto fits into your broader financial picture.

If you’re unsure how your personal or business crypto activity should be reported, or how it affects your tax strategy, a proactive review can help bring clarity and avoid surprises.

Links to Learn More

• Tax Strategy for Entrepreneurs

• Clean Bookkeeping Best Practices

• Cash Flow Planning for Business Owners