Crypto Payments in Your Business: How to Report Them Legally for 2025
- Kim Yurosko
- Oct 24
- 5 min read
Accepting cryptocurrency payments can open new opportunities for your business, but it also introduces new tax responsibilities. Whether you’re in San Martin, San Jose, or anywhere in California, the IRS now considers most crypto transactions taxable. In this guide, you’ll learn how to report crypto income correctly, stay compliant under the new 2025 tax rules, and protect your business from unnecessary penalties.
Key Takeaways for Business Owners
Cryptocurrency payments are treated as income by the IRS. That means every time your business receives Bitcoin, Ethereum, or any other digital asset, it must be reported at its fair market value in U.S. dollars at the time of receipt. Failing to do so can lead to compliance issues or audits.
You’ll learn:
How to determine the taxable value of crypto payments
Which forms to use when reporting
How California taxes crypto differently
Why proper bookkeeping is essential for crypto transactions
To simplify these processes, explore KY Tax Service & Bookkeeping’s full range of services.
What Counts as a Crypto Payment?
Defining Crypto as Business Income
If your business accepts cryptocurrency in exchange for products or services, that payment is considered taxable income. The IRS defines crypto as “digital assets” and requires you to calculate the fair market value in U.S. dollars on the date you receive it. IRS Digital Assets Guidance outlines the requirements for businesses reporting digital currency income.
How Crypto Differs from Cash or Card Payments
Unlike traditional payments, cryptocurrency values can fluctuate rapidly. For example, if a customer pays $500 in Bitcoin and its value drops by 10% before you exchange it for cash, the reported income remains $500—the value on the date of receipt. These fluctuations make detailed bookkeeping crucial. Learn more about managing your records with professional bookkeeping services.
How to Report Crypto Payments on Your Taxes
Reporting on Federal Returns (IRS Requirements)
As of January 2025, new IRS regulations require businesses and brokers to use Form 1099-DA for digital asset reporting. Every sale, exchange, or payment involving crypto must be included in your income statement. Businesses should list crypto payments on Schedule C (for sole proprietors) or the appropriate corporate tax return. More details are available on the IRS Final Regulations for Broker Reporting.
California Tax Implications
California treats all crypto income as ordinary income, not capital gains. This means every crypto payment you receive is subject to state income tax rates. Keeping accurate records is the only way to avoid disputes or underreporting penalties. To understand how California’s system applies, read Understanding California’s Current Tax System.
Step-by-Step: Recording and Reporting Crypto Transactions
Step 1: Determine Fair Market Value
At the time you receive crypto, note its fair market value in U.S. dollars. Most businesses use exchange platforms like Coinbase or Binance to determine this value.
Step 2: Record Each Transaction
Maintain detailed records including:
Date and time of receipt
Type of cryptocurrency
Fair market value (USD)
Wallet address used
Name of the payer (if applicable)
This ensures compliance and simplifies future audits. Tools like Koinly’s Crypto Tax Guide can assist with fair market value calculations.
Step 3: Report Income and Expenses
Once transactions are logged, record crypto received as revenue and note related fees as business expenses. For complete assistance with crypto tax preparation, visit the KY Tax Service & Bookkeeping home page.
Paying Employees and Contractors in Crypto
Payroll Compliance and Withholding
When paying employees in crypto, wages must still be reported on Form W-2 and are subject to standard payroll withholding for income and employment taxes. Contractors paid in crypto must receive Form 1099-NEC.Review H&R Block’s Crypto Payroll Guidance for more examples of how the IRS handles crypto wages.
Why Payroll Services Are Essential for Crypto
Tracking valuation and withholding accurately is complex. KY Tax Service & Bookkeeping can manage payroll for crypto payments, ensuring compliance with both federal and California law. Learn more about their payroll and bookkeeping services.
Common Mistakes to Avoid When Reporting Crypto
Mixing Personal and Business Wallets
Keep personal and business crypto wallets completely separate. Mixing funds can make it difficult to track income accurately and may trigger IRS scrutiny.
Ignoring Small Transactions
Even small crypto payments count as taxable income. The IRS has stepped up enforcement using data from exchanges and payment processors. For more guidance, see IRS FAQs on Virtual Currency Transactions.
Preparing for the 2025 Crypto Reporting Changes
Overview of the New Form 1099-DA
Starting January 2025, all digital asset brokers must issue Form 1099-DA to report sales and exchanges of crypto. Businesses accepting crypto should expect to receive these forms just like traditional 1099s.
How Businesses Should Prepare
To comply with the 2025 rules:
Update your accounting software to track digital assets.
Keep detailed wallet-by-wallet records.
Review income reporting procedures with your accountant.
Consult a professional tax advisor before filing.
To ensure readiness, contact KY Tax Service & Bookkeeping for a compliance review.
Why Professional Bookkeeping Is Critical
Avoiding Audit Risks
Poor crypto recordkeeping increases your risk of IRS audits. The agency is specifically targeting unreported digital asset transactions. Businesses with incomplete records can face back taxes and penalties.
How KY Tax Service & Bookkeeping Can Help
Our team understands how to manage digital assets for California businesses. From tax reporting to crypto payroll, we help small businesses stay compliant and efficient. Learn how KY Tax Service & Bookkeeping’s bookkeeping solutions simplify reporting and reduce audit exposure.
Conclusion: Stay Compliant, Stay Confident
Cryptocurrency can be a valuable addition to your business operations, but tax compliance is non-negotiable. Reporting every transaction accurately protects your business from penalties and keeps your records transparent. KY Tax Service & Bookkeeping provides expert guidance for crypto bookkeeping, payroll, and federal and state tax filing.
If your business accepts or plans to accept crypto payments, reach out to our experts for professional advice. Schedule your consultation today through the Contact Page.
FAQ – Reporting Crypto Payments for Your Business
How does the IRS know about crypto transactions?
Crypto exchanges must now report transactions to the IRS using Form 1099-DA. Blockchain data also makes transactions traceable, so non-reporting can trigger audits.
What are the new crypto tax rules for businesses in 2025?
Starting in 2025, brokers must issue Form 1099-DA for all digital asset transactions, and businesses must report crypto income based on fair market value in USD.
Is accepting cryptocurrency considered taxable income?
Yes. When your business receives crypto for goods or services, it is treated as taxable income based on its fair market value when received.
Which forms should businesses use to report crypto payments?
Businesses use Schedule C or corporate returns to report crypto income. Employees and contractors paid in crypto require Form W-2 or 1099-NEC, respectively.
What are the penalties for not reporting crypto income in California?
Underreporting crypto income can result in federal fines, California state penalties, and possible audits. Accurate bookkeeping and timely reporting prevent these issues.
Do I need separate wallets for business crypto transactions?
Yes. Maintaining a dedicated business wallet ensures accurate tracking and separation of personal and business assets for reporting purposes.
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