Accounting for Cryptocurrency: Tips, Requirements & Best Practices

Accounting for cryptocurrency is not something to take lightly. Any business accepting this emerging payment method has a lot to learn. In fact, it takes a great deal of studying to effectively (and legally) handle Bitcoin and other crypto. This guide will help you get started.

Is It Legal To Accept Cryptocurrency?

One of the most popular questions business owners have when talking about cryptocurrency is also one of the most complex. But, determining the answer to this question will allow you to figure out whether your business will accept “crypto” at all.

The legalities of cryptocurrency remain confusing. However, that hasn’t slowed down its adoption by big corporations. PayPal, Shopify, Expedia, Overstock, and even Subway have begun accepting cryptocurrency transactions. The tech world has also followed suit, with Microsoft announcing its rules of acceptance too.

From Bitcoin to Etherium, businesses big and small accept many types of cryptocurrencies. With the volatility of the markets, though, most companies stick to the more well-known coins (like those two just mentioned). But, when it comes to laws, it doesn’t matter which type of crypto you’re working with. The same rules apply.

The short answer is yes, a business can legally accept cryptocurrency. You just need to learn the ins-and-outs of managing it. Below, you’ll find some considerations that you need to keep in mind.

Your Crypto Accounts Aren’t Insured

When you put money into a bank account in the United States, there’s a hidden feature that most of us never give much thought. But, without it, we could all face a tremendous financial loss. FDIC insurance is a type of backing the Federal Deposit Insurance Corporation provides for some financial establishments.

Basically, this insurance protects you in case the bank loses your money in a massive breach, goes out of business, or fails in general. The “FDIC insured” label is something you can find in the fine print of most banks and credit unions, and it’s a big deal.

Unfortunately, you won’t have the same backing for your Bitcoin or other cryptocurrencies. When you accept a cryptocurrency, you have to store it in some sort of “wallet” (crypto account). These wallets are not FDIC insured, which means you risk losing your crypto. The only way around it? Immediately sell any crypto you accept and transfer the money to your normal bank accounts. But, then you lose out on the potential growth value of the cryptocurrency you were so excited to get.

Cryptocurrency Is Taxable As Property

Don’t get fooled into thinking that Bitcoin is your ticket to a massive tax break. On the contrary, many businesses will need to update their accounting methods to properly track and manage their cryptocurrency transactions. For tax purposes, any cryptocurrency you accept, possess, or give to someone else will get taxed as property.

The Internal Revenue Service announced this back in 2014. The notice has a few implications for your business if you are going to be handling cryptocurrency. Here’s a quick overview.

Paying Employees: Any crypto you pay to an employee must get documented on their W-2. This responsibility falls on your business.
Paying Contractors: A contractor must report any cryptocurrency income they receive on their income tax return. This falls on them at the end of the year.
Payments in Property: Any payment you make in the form of cryptocurrency has to get reported in the same way you report all payments in property.
Capital Gain or Loss: Cryptocurrency can get classified as a capital asset. That means your business is liable for all gains and losses associated with its exchange or sale.

The Laws Are Always Changing

The saying that “change is the only constant” could not be more true in the world of cryptocurrency. When it comes to the laws associated with crypto, everything is still in its early stages. Your business should stay prepared for new laws and reporting requirements in the coming years.

The Securities and Exchange Commission already classifies cryptocurrency as “securities” in some situations. If your business’ use fits into that description, you will have to comply with the regulations involving securities exchange in addition to other crypto laws.

Cryptocurrency transactions are also bound by the Fair Trade Commission Act. This act bans “unfair or deceptive acts or practices affecting commerce,” and vendors are still unsure how this could impact cryptocurrency.

Finally, keep in mind that the current interpretation of the Constitution gives Congress the right to regulate crypto. You should expect to contend with new regulations in the coming years. With all of that said, these facts aren’t meant to discourage you from accepting cryptocurrency. Your business just needs to be certain that crypto is something you can effectively account for.

Determine If Your Business Is Ready

Cryptocurrency is still an up-and-coming market. Businesses can look at that statement in two different ways.

First, you might assume that most of your customers don’t use cryptocurrency anyway (at least, not yet), so why bother going through the hassle? That’s a valid opinion, and it’s the stance most businesses are taking right now. If you want to wait until cryptocurrency has clearer regulations and a stronger following, that just might be the best decision for your business.

However, the other stance that some businesses take is also valid. This is the opinion that, since cryptocurrency is still in its early days, most competitors haven’t adopted it yet. That means being one of the first businesses to accept cryptocurrency can help a company get the first-mover advantage on their market.

If you’re wondering which approach your business should take, ask yourself a few questions.

Does your audience overlap with the crypto user base?

Knowing your audience will really help you determine whether or not accepting cryptocurrency is the right move. At the end of the day, it’s your customers who decide if it stays or goes. Determining whether accepting crypto is worth the extra work will come down to whether enough customers will actually use it.

If your business is in the tech industry, it might be a good idea. The same goes if your audience is generally young. An audience appreciative of innovation will also take better to cryptocurrency payment options. In any of these cases, you can likely justify the acceptance of crypto.

Do you have the capacity to handle it properly?

Cryptocurrency isn’t exactly “instant”. In fact, this is one of the biggest aspects hindering its adoption. Your business won’t be the first to face issue with it. Some companies that initially implemented crypto actually later took it away for this reason. After all, the infrastructure is still very much in its infancy.

Expedia is one example. In July 2018, they quietly retracted their acceptance of Bitcoin. The company faced multiple hurdles in their attempt to adopt it. Among them, they cited slow processing times and many failed payments. It ultimately became too big of a hassle for the customers who tried using it.

Do you believe in crypto as a business?

Your customers will be a huge deciding factor in your decision on whether or not to accept crypto. But, there is also a point where you have to think about your own opinions. After all, crypto is a very new thing. Markets are volatile. Any crypto you possess could literally lose its value overnight.

Knowing these things, you have to consider if you’re willing to take a risk on crypto. Many believe that the market will continue to grow. That means they think the value of cryptocurrencies will grow with it. If that’s you, you should certainly consider adding it as a payment option.

However, if you are risk averse, you should probably wait. The same goes for business owners who don’t believe in crypto. Before diving into the adoption process, think about it. After all, adopting crypto will be a long and involved process. It’s something your business will really need to be sure of before you add it to your list of priorities.

Need Help?

Nothing beats the assistance of a professional. Cryptocurrency is confusing enough on its own. If your business is trying to figure out its ins-and-outs, you should reach out to Founder’s CPA for help. We can answer all of your questions and give advice to get you on track. Learn more here.

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Post by Curt Mastio
Apr 3, 2024 2:37:06 PM

Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.