If you’re a firm believer in Bitcoin and its long-term price appreciation, you might be tempted to explore the possibilities of getting paid in this cryptocurrency. For example, maybe you’re a freelancer or a contract employee who prefers payment in Bitcoin. Some people even receive bonuses in Bitcoin. But do you pay taxes on crypto and what would the implications be if you chose to opt for this route? Our team at Founder’s CPA is here to help guide you through the complicated topic of crypto taxes.
A growing number of people are asking to receive their salaries in crypto, but what are the tax implications? According to the IRS, in the case that you receive crypto in exchange for a provided service, it’s considered a taxable event. If you’re receiving Bitcoin as a base salary, you’ll have to recognize it as ordinary income.
This means that the IRS considers the fair market value of crypto in US dollars on the date that you receive your federal income tax and payroll tax calculations. Make sure to consider nuances such as your capital gains if you’ll be disposing of the Bitcoin at a profit. Some people also receive wages in both Bitcoin in addition to another cryptocurrency, so make sure all of this information is reflected properly on your tax forms.
If you receive a year-end bonus or any sort of bonus in cryptocurrency, you’ll need to add this amount to your total income. Be sure to do this regardless of whether your base salary is paid in Bitcoin. Similar to receiving a salary in Bitcoin, the amount that you receive in a bonus will become your cost basis and is the fair market value in USD at the time that you receive your crypto.
The rules remain the same for independent contractors as they do for receiving a salary in Bitcoin, however, keep in mind that you’ll have a self-employment tax that’s layered on top of your income tax. Right now, those who are self-employed in the US have a self-employment tax that includes social security and Medicare payments. It’s possible that you’ll get a deduction on some of those taxes when your tax returns are filed.
Do you pay taxes on crypto on your own? There are many small things to keep in mind when filing your crypto taxes, and it’s sometimes best to work with a professional to ensure that you’re doing things properly to avoid fees and maximize your efficiency. There are many strategies that can be implemented to minimize your tax payments and ensure accurate filings, and our team can guide you every step of the way. It’s never too early to start preparing for next year’s tax return!
Get in touch with our team at Founder’s CPA to get started.
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