Where you could once only spend Bitcoin and other cryptocurrencies in the depths of the internet, crypto payments are now relatively mainstream - with a large amount of businesses accepting crypto payments. Unlike with fiat currency though, when you’re paying in crypto, your tax office wants to know about it. Learn all about crypto payments and what they mean for your taxes in our guide.
Just like you can spend your dollars at the store, now you can spend your crypto at a huge variety of merchants - both brick and mortar, and online.
You can pay with a variety of popular cryptocurrencies including BTC, ETH, BNB, BUSD and many more. As well as this, thanks to the many different ways to pay in crypto - you can even pay in less popular cryptocurrencies.
There are a few different ways you can pay in crypto. Many companies are using a crypto payment processor to accept crypto payments nowadays. Examples of this include:
Even huge e-commerce giants like Amazon have hinted that they’ll soon be accepting payments in crypto, so if your favourite store hasn’t started letting you pay in crypto just yet, don’t worry.
As well as this, there’s a number of crypto exchanges offering crypto payment products like Binance Pay, Crypto.com Pay and Coinbase Card that let you spend whatever crypto you’re holding at a huge number of stores that don’t yet accept crypto payments.
It depends on the product you’re using, but if you’re using a crypto payment app or crypto credit or debit card - pretty much anywhere that accepts Visa or Mastercard.
As well as this, many stores directly accept crypto as payment - whether direct or through a payment processor. Some notable names include:
If you’re reading this as a business owner and thinking you want to jump on the crypto payments bandwagon - do it! Crypto payment processors have made the whole process much easier. Businesses no longer need to have an in-depth understanding of how crypto works to accept payments - just pick a crypto payments processor and accept crypto payments in minutes.
Now for the bad news - when you pay in crypto, it isn’t seen like paying in dollars from a tax perspective.
The IRS views crypto payments as a disposition of a capital asset, as do most tax offices around the world. This means any profits are subject to Capital Gains Tax.
How could you have a profit from paying in crypto? Good question.
When you pay in crypto - the IRS sees this as you selling your crypto for fiat currency. In fact, in many instances, this is what your payment processor does for you. So when you’re spending crypto on your credit card or checking out with crypto via PayPal, behind the scenes your crypto is being sold for fiat currency like USD, which is what you actually pay with.
As for profit - this is the difference in value between when you acquired your crypto and when you spent it.
If the value of your crypto has increased, you have a capital gain and you’ll pay Capital Gains Tax on that gain. If the value of your crypto has decreased, you have a capital loss and you won’t pay tax (although you can use losses to reduce your tax bill).
So to clarify, to calculate your capital gain/loss you need to subtract your cost basis (what it cost you to acquire your crypto plus any fees) from the fair market value of the crypto on the day you spent it.
Making crypto payments regularly? You need to keep track of each disposition of crypto - so every time you spend - and report each transaction on Form 8949 if you live in the US.
It’s a lot of paperwork.
Fortunately Koinly crypto tax calculator can help. All you need to do with Koinly is sync the wallets and exchanges you use via API or by importing a CSV file, and Koinly will do the rest. It’ll identify your cost basis and taxable transactions, as well as any subsequent capital gains, losses and crypto income.
Once you’ve got your crypto transaction data in Koinly, you can view your tax summary on the tax reports page, as well as download your pre-filled tax report. Koinly offers lots of different tax reports depending on your location. For US investors, we offer Form 8949 and Schedule D, as well as TurboTax and TaxAct reports.