Crypto and Taxes: What Every Business Needs to Know Before Tax Season 2026

by Jackie Navarrete

What are the things every business needs to know before tax season?

Cryptocurrency has evolved far beyond the world of tech-savvy investors and blockchain enthusiasts. Today, small businesses—from local coffee shops to online retailers—are accepting crypto payments, investing in digital assets, or even using blockchain-based platforms to streamline operations.

But as exciting as digital currency is, crypto introduces a whole new world of tax implications. The IRS is paying close attention, and as a small business owner, you should too.

Whether you’re holding Bitcoin as an investment, accepting Ethereum for payments, or exploring NFTs for brand engagement, you’re now in IRS territory. And trust us, Uncle Sam wants to know about it.

Let’s break down what you need to know about crypto and taxes as a small business owner.

How the IRS Views Crypto: It’s Property, Not Currency

First things first: how does the IRS see cryptocurrency?

The IRS doesn’t consider digital assets like Bitcoin or Ethereum as currency. Instead, it classifies them as property. This is a big deal.

Why? Because that means every time you use, trade, or sell crypto, it’s potentially a taxable event—just like selling a stock or a piece of real estate.

So, if your business accepts crypto as payment or buys crypto as an investment, you’ll need to keep detailed records of each transaction, including:

• The date of the transaction
• The fair market value of the crypto at the time
• What you paid (or what the crypto was worth when you received it)
• Any gains or losses from when you dispose of it

If you’re thinking, “Yikes, that’s a lot of tracking”—you’re right. But it’s necessary if you want to stay compliant and avoid trouble come tax season.

Every Crypto Transaction Counts—Even the Small Ones

Let’s say your small business accepts crypto payments from customers. Here’s where it gets a little tricky.

Each payment in crypto counts as two separate transactions:

1. Receiving crypto as income: This must be reported as gross income based on the fair market value of the crypto at the time of the transaction.
2. Selling, trading, or converting that crypto: If you later convert that crypto into USD or another coin, that counts as a capital gain or loss event.

So, accepting a $50 Ethereum payment isn’t just one line item—it’s two taxable events to track.

Quick example:

• You receive 0.02 ETH worth $50 in February.
• You hold onto it, and in July, you convert it to USD when it’s worth $70.
• You must report $50 in business income and a $20 capital gain.

That’s why it’s crucial to use accounting software or crypto tax platforms that can keep up with this level of detail. Otherwise, you’ll be digging through wallet addresses and exchange histories in April.

What Counts as a Taxable Event?

A taxable event is any activity that results in a capital gain or loss or generates income. Here’s a breakdown tailored to small business owners:

Taxable Events:

• Accepting crypto as payment for goods/services
• Trading one crypto for another (e.g., Bitcoin → Ethereum)
• Selling crypto for fiat currency (e.g., USD)
• Using crypto to pay vendors, rent, or business expenses
• Receiving crypto from mining or staking (treated as income)

Non-Taxable Events:

• Buying crypto with fiat currency and holding it
• Transferring crypto between wallets you own

If you’re engaging in crypto transactions throughout the year, you could be dealing with dozens or even hundreds of taxable events, depending on your activity level.

Short-Term vs. Long-Term Capital Gains: Timing Matters

When it comes to disposing of crypto, how long you’ve held the asset can impact how much you owe the IRS.

• Short-term gains (held for less than a year): Taxed as ordinary income, which could be as high as 37%, depending on your tax bracket.
• Long-term gains (held for over a year): Taxed at a lower capital gains rate—0%, 15%, or 20%, depending on your total income.

For small business owners who are investing in crypto or holding it as an asset on the books, this distinction is critical.

Pro Tip: If you’re thinking about selling off some crypto, check your holding period. Waiting just a few extra days could move you from short-term to long-term and save a lot on taxes.

Reporting Crypto Distributions and Income

Did your business receive airdrops, mining rewards, staking income, or crypto interest? All of these count as income and must be reported.

The IRS is very clear on this point—all distributions must be included in your gross income at the fair market value on the day you received them. This applies whether you:

• Mined crypto using business resources
• Staked coins for rewards
• Received tokens as promotional airdrops
• Earned interest through decentralized finance (DeFi) platforms

Even if you never sold or converted the tokens, the distribution itself is taxable.

How to Keep Track of Crypto Transactions Throughout the Year

For small businesses, tracking crypto manually is like herding cats on roller skates. It’s not just hard—it’s chaotic.

Here’s what you need to do:

1. Use crypto accounting software like CoinTracker, TaxBit, or Koinly.
2. Sync wallets and exchanges to keep transaction records automatically.
3. Log fiat equivalents at the time of each transaction.
4. Tag business-related transactions separately from personal ones.
5. Work with a CPA who understands crypto. Trust us, not all do.

If your business is more than casually dabbling in crypto, automation is your best friend. Manual spreadsheets might work for a few trades, but they won’t cut it if you’re using crypto as a payment method or exploring NFTs or DeFi.

What If You Don’t Report Crypto Activity?

Here’s the thing: the IRS is cracking down hard on crypto.

Every year, the IRS updates Form 1040 with a big, bold question: “At any time during the year, did you receive, sell, exchange, or otherwise dispose of any financial interest in any digital asset?”

Answering “No” when the truth is “Yes” is a huge red flag and could lead to audits, penalties, and interest. In serious cases, it could even mean criminal charges.

In fact, exchanges like Coinbase, Binance.US, and Kraken are required to report certain transactions to the IRS, so even if you don’t report it—they might.

Crypto + Small Business = Opportunity (and Responsibility)

There’s no denying that crypto can open new doors for small businesses:

• Accepting digital payments
• Tapping into new customer bases
• Earning through staking or DeFi
• Investing excess cash in digital assets

But with innovation comes responsibility. Taxes are the trade-off.

To stay ahead:

• Keep clean records
• Understand the tax impact of each transaction
• Know the difference between personal and business crypto
• Stay up to date with IRS changes
• Don’t guess—consult a tax pro

Final Thoughts

Crypto isn’t just a shiny new toy for big tech companies anymore. Small businesses are jumping into the digital asset game, and the IRS has taken notice.

Every crypto transaction—no matter how small—has tax consequences. From receiving Bitcoin as payment to swapping one token for another or earning staking rewards, each action could be a taxable event. Add in the nuances of short vs. long-term gains, income reporting, and crypto-as-property, and it’s easy to get overwhelmed.

But don’t panic. With the right tools and a bit of planning, you can harness the power of crypto and stay compliant.

And if you’re still unsure, find a tax professional who speaks fluent crypto. Your business—and your future self—will thank you.

For more insights like this, keep up with the VMS blog—where small business meets big tech without the fluff.