Council Post: Getting Paid In Cryptocurrency? Learn The Tax Laws

Robin is the co-founder and CEO of Koinly, a bitcoin and cryptocurrency tax software that assists Bitcoin investors with their tax calculations.
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Due to the growing popularity of cryptocurrencies around the world, some employers are already paying their staff in cryptocurrencies such as bitcoin or ether. Crypto payments are becoming increasingly popular, despite the fact that the crypto industry has been paying salaries in digital currencies for years (Coinbase paid staff salary in crypto as early as 2013).
For example, the GMO Internet Group in Japan has opted to offer its employees the option of receiving their pay in cryptocurrency. In fact, there are now services that allow companies to pay their employees in cryptocurrency.
Another area where I’m seeing more crypto payments is in freelancing, particularly when it comes to overseas payments. Cryptocurrencies are being used to pay remote workers all across the world, whether they’re programmers, designers, or content marketers. Existing solutions can be quite costly, therefore bitcoin or ether payments are a simple and cost-effective alternative.
Understand the benefits and drawbacks.
If you’re getting paid in crypto, there are a few things to keep in mind. There are several obvious benefits to receiving a portion of your income in cryptocurrency. Things like quick and cost-effective transfers (particularly for international payments), financial emancipation from the traditional centralized banking system, and robust identity protection are all part of this.
ADDITIONAL INFORMATION FOR YOU
At the same time, there are a few potential snags that you should be aware of. To begin, keep in mind that cryptocurrencies are extremely volatile, and if their value drops dramatically, your net worth may be impacted. As a result, it may be a good idea to ensure that you only receive a portion of your salary in crypto, or to consider selling some of it as soon as you receive it. If you’re familiar with crypto trading and expect your crypto assets to rise, on the other hand, you might want to hold on to the currency.
Recognize how the tax system works.
If you get paid in cryptocurrency, you should be aware of the tax consequences and file your taxes accordingly. To put it another way, imagine you’re a freelancer who wants to collect $1,000 in bitcoin from a customer. If the value of the bitcoin on the day of payment is $10,000, you will receive 0.1 bitcoin.
When it comes to taxation, the IRS states that you must calculate the difference between your adjusted basis and the price at which you sell the currency, and you must report this amount on your taxes when you sell the currency. Many people are confused about how cryptocurrency taxes operate, and as a result, they fail to declare their cryptocurrency earnings. The IRS, on the other hand, is urging more stringent adherence to cryptocurrency regulations. So, if you haven’t been declaring your cryptocurrency earnings, now is the time to start. You can even edit previous returns if you received revenue in the past.
One of the difficulties with preparing these forms is that you may forget the fair market value of the cryptocurrency you received. Uploading your information to a crypto tax software program can assist you in determining the worth of your cryptocurrency and filing your returns accordingly.
Don’t forget about capital gains tax.
If you believe declaring your bitcoin income will take care of your tax returns, think again. Bitcoin and other cryptocurrencies are classified as “property” by the Internal Revenue Service. This effectively means that any profit you make when selling bitcoins must be paid as capital gains.
You’ll have to pay short-term capital gains tax on profits if you’ve owned the cryptocurrency for less than a year. This profit is added to your total taxable income, and the amount of taxes you must pay is determined by your tax bracket. If you keep cryptocurrency for more than a year, you’ll have to pay long-term capital gains tax, which can be as much as 20% of your profit.
Write down any capital losses you’ve incurred.
Remember that if you sell crypto at a loss, you can deduct your losses from your taxable income, lowering your tax bill. Don’t forget to keep track of your losses and report them when you file your taxes.
Receiving a portion of your paycheck in cryptocurrency can seem both freeing and efficient, as well as cost-effective. Stay on top of your taxes, though, to save unneeded worry later.
This website does not provide investment, tax, or financial advice. For counsel on your individual circumstance, you should seek the opinion of a licensed professional.
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