We all know the old saying- "it's not how much you make, it's how much you take home." As people are pulling out fortunes from the crypto markets, people start flipping NFT's, and businesses look to accept crypto, there is still a lack of clarity on crypto taxation at both the consumer and corporate level.
This post relates to the US policies, so bear in mind this is locally focused. Assuming that you are a business (LLC, S-Corp, C-Corp), you have the option of accepting crypto as payment- like us. This is great, except the laws currently view crypto as an asset. How does this differ from normal dollar income from running a business?
Before getting into taxes, we should talk about what crypto actually is. It's something new- both an asset and a means of currency exchange. Before crypto, the dollar was the main source of transfer of wealth- you could save them through accumulation, pay someone with them, and trade against the price of them. They were a currency. When you went into the store to buy a Red Bull, you weren't being taxed when you paid $2.99 for it.
With crypto, you can do the same thing as a fiat dollar, meaning that people can use it as a store of value, borrow against it, collateralize it, and use it to buy Red Bull. It is exactly like the USD, but it's just not issued by the Treasury.
Now, what the IRS states, is that "USDC to USD is a taxable transaction based on the difference between the value of the USDC when purchased and the value when it was sold." This is fine for USDC, since you won't see value appreciation relative to the USD, since it is pegged 1:1.
However, if you want to buy with Bitcoin, Ethereum, or your favorite shitcoin that appreciates in value, this is where you run into taxation problems.
Because of this ruling, they have essentially barred wallet to wallet transactions in the interest of simplified legislation. They have coupled crypto as an asset and currency, so you are taxed as normal income levels (state + federal income tax rates) if you buy and then sell in under 1 year, or you are taxed as
If you are taxed just from buying a Red Bull, how are you supposed to build an entirely new world of financial exchange when every transaction is considered an asset exchange?
If we truly want a fluid financial system, there needs to be more understanding at the Federal level. The US has been an incredible force of technological advancement for the world, but the incentive to perform in this country will diminish as other countries start offering more attractive financial rewards for innovation.
* Please note, this is not financial advice, and you should invest in assets wherever you deem prudent. This is just a surface-level analysis of taxes for general insight.
** Here is a long post on Reddit on crypto taxes