Episode 55: Accepting Crypto Payments In Your S Corporation

Accepting crypto as payment in your S-Corporation? Before you do ANYTHING, listen to this podcast. Crypto inside an S-Corporation doesn't work like a stock investment, real estate, or even holding crypto personally. The IRS has specific rules for digital assets inside a business, and if you don't understand them, a profitable decision can quickly turn into a tax nightmare.

In this podcast, I walk you through the 5 critical tax rules every S-Corporation owner MUST know before accepting, holding, or trading cryptocurrency inside their business. Plus, a powerful retirement account strategy that lets you invest in crypto completely tax-free (legally).

🆓  Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know:   https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

Transcript

Crypto And S Corp Overview

SPEAKER_01 0:00

So you're thinking about accepting crypto inside your S corporation. Before you do, you need to know crypto inside an S corporation doesn't work like a stock investment. It doesn't work like real estate. It doesn't even work like holding crypto personally. The IRS has its own set of rules specifically for how digital assets are taxed inside a business. And if you go in without understanding them, you could easily turn a profitable decision into a tax headache. The good news, once you understand the rules, there are smart ways to set this up. And that's exactly what I'm walking you through today. I'm going to walk you through five things you need to know before you start accepting crypto in your S corporation. Number one, how IRS treats crypto inside your S corporation. Number two, what happens when you accept crypto as payment from a client? Number three, how crypto gains and losses flow through directly to your personal tax return after you sell them. Number four, what happens if you sell crypto at a loss? Number five, how to track your cost basis. And finally, and this is the one I want you to stay for a retirement account strategy that can let you invest in crypto completely tax-free, legally, through your S corporation. Most business owners have never heard of this, and for the right person, it could be a game changer.

IRS Property Rules And Tax Events

SPEAKER_00 1:21

Welcome to the tax reduction podcast for money-making entrepreneurs with Boris Musheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. And this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy-to-understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Accepting Crypto Payments Correctly

Cost Basis Tracking And Pro Help

SPEAKER_01 1:54

Now let's get into this tax strategy and start with the foundation, because everything else builds on this one concept. Since 2014, the IRS has treated cryptocurrency as property. Under notice 2014-21, Bitcoin, Ethereum, Solana. Doesn't matter in the eyes of the IRS, they are all property, just like stocks or real estate. Now, why does that matter for your S corporation? Because with property, you have to recognize a gain or loss every single time you dispose of it. And dispose of it, it means a lot more than just selling for cash. Here's what counts as a taxable event inside your S corporation. Number one, selling crypto for dollars. Number two, trading Bitcoin for Ethereum. Number three, you disposed of the Bitcoin. Number four, accepting crypto as payment from a client. Also, here the key point to remember you recognize income the moment you receive it. And here's the one that catches a lot of people off guard. Unlike real estate, you are you cannot do a 1031 like kind exchange with crypto. That door is closed. Every crypto to crypto trade is fully taxable. This is why the record keeping requirements are so serious. You're not just tracking one or two transactions a year, you're potentially tracking dozens, you know, hundreds, each one with its own cost basis and holding period. Now let's talk about something that's becoming more and more common. Clients who want to pay your S corporation in crypto, can you accept it? Yes. But let me walk you through exactly what happens the moment that payment hits your wallet. When your S corporation receives cryptocurrency as payment, it recognizes ordinary business income. The same as if that client handed you cash. The amount you report is the fair market value of the crypto at the exact moment of receipt. Not tomorrow, not when you check your phone. The moment it's received, that is when it is considered ordinary income. Here's a real example. A client pays you 0.1 Bitcoin when Bitcoin is trading at$60,000. Your S corporation just recognized$6,000 of ordinary business income. That$6,000 also becomes your cost basis in that 0.1 Bitcoin going forward. Now, what happens when you later sell that Bitcoin? Let's say it's gone up to$70,000 by the time you sell. Your S corporation recognizes an additional$1,000 of capital gain on top of the$6,000 income you already reported. So you're essentially getting taxed twice on the same crypto. Once as income when you receive it, and again as a capital gain when you sell it. That's not an unfair loophole. That's just how the rules work. And it's exactly why you need to be tracking every transaction. Now, the holding period for that capital gain, long-term versus short term, starts on the day your S corporation received the payment. Hold it for more than a year before selling. You get the preferential long-term rate, hold it less than a year, you're paying ordinary income rates on that gain. Now here's the practical challenge. Crypto prices move every minute, so you need a real process in place. For every payment received, document the date, the time, and the exchange rate you used. Most businesses pull the spot price from a major exchange, coin market cap, Coinbase, whatever you're using, and record it. If you're going to accept crypto as payment on a regular basis, get that documentation system in place and before the first transaction comes in, not after. Because trying to reconstruct prices from months ago, it's a nightmare. And the IRS will not be sympathetic. I can promise you that. Now let's talk about something critical. And this is the section that separates the S corporation owners who have a smooth tax filing from the ones who are scrambling in March. Cost basis tracking for crypto is genuinely more complex than for stocks. Here's why. With stocks, your brokerage automatically tracks your basis, then sends you a 1099. Crypto exchanges, they've only recently started providing this information. And if you're transacting across multiple wallets and are multiple platforms, you are responsible for tying it all together. For every acquisition, you need to record the date, the amount, the price you paid, and any transaction fees. Those fees, they get added to your cost basis. And when it comes time to sell, you need to identify which specific units you're selling. The IRS allows specific identification, meaning you can choose which coins you're disposing of. And that can be a powerful planning tool if you don't specifically identify. You default to first in, first out, which may force you to recognize gains earlier than you'd like. My strong recommendation, use dedicated crypto tax software, tools like CoinTracker, Coinly, or Taxbid can connect to your exchanges and wallets and automate a lot of this, but you still need to review the output and make sure it's accurate before it goes on your return. Don't wait until tax season. Track in real time. Now, this is also where I want to talk about something important, the difference between a tax preparer and a tax advisor. A tax preparer takes what happened and puts it on a form. A tax advisor helps you make decisions before they happen. So you're not paying more than you should. Crypto inside an S corporation has too many moving parts, too many timing decisions, too many opportunities to save for you to just hand it to someone at the end of the year. You need someone who understands cost basis strategies, holding periods, and how every transaction flows through to your personal return. Don't wait until March to find out you made the wrong moves. Work with a tax advisor proactively. That's how you stay ahead of this.

SPEAKER_00 7:28

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner. Seven tax write-offs every S Corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Loss Harvesting Without Wash Sales

Self Directed Solo 401k For Crypto

Recap Resources And Next Steps

SPEAKER_01 7:58

Now let's talk about the other side of crypto, because not every investment goes up. And when it goes down, your S corporation can actually turn that into a tax opportunity. Here's how when crypto values drop, your S corporation can sell at a loss and recognize a capital loss. That loss passes through to you on your K1, where it first offsets any capital gains you have from other investments. And if your losses exceed your gains, you can deduct up to$3,000 against your ordinary income each year. And the rest carries forward indefinitely. Now here's the part that makes crypto different from stocks, and this is important. The wash sale rule does not currently apply to cryptocurrency. Let me explain what that means. With stocks, if you sell at a loss and buy the same stock back within 30 days, you lose the tax benefit. The IRS disallows it. With crypto, under current law, your S corporation can sell Bitcoin at a loss and immediately buy it right back and still claim the loss. That is a real and legal tax planning opportunity right now. I say right now, because proposed legislation could change this. Congress has been eyeing this for a while, but until the law changes, this is absolutely worth being aware of and worth having a conversation with your tax advisor about. Because the timing of when you harvest those losses, which positions you sell and how it all interacts with your other investments, those are decisions that need to be made proactively, not in March. Now, let's talk about something critical. And this is the section that separates the S corporation owners who have a smooth tax filing from the ones who are scrambling in March. Cost basis tracking for crypto is genuinely more complex than for stocks. Here's why. With stocks, your brokerage automatically tracks your basis and sends you a$10.99. Crypto exchanges, they've only recently started providing this information. And if you're transacting across multiple wallets or multiple platforms, you are responsible for tying it all together. For every acquisition, you need to record the date, the amount, the price you paid, and any transaction fees. Those fees, they get added to your cost basis. And when it comes time to sell, you need to identify which specific units you're selling. The IRS allows specific identification, meaning you can choose which coins you're disposing of. And that can be a powerful planning tool. If you don't specifically identify, you default to first in, first out, which may force you to recognize gains earlier than you'd like. My strong recommendation, use dedicated crypto tax software. Tools like CoinTracker, Coinly, or TaxBit can connect to your exchanges and walletsmen, automate a lot of this, but you still need to review the output and make sure it's accurate and before it goes on your return. Don't wait until tax season. Track in real time. Now, this is also where I want to talk about something important. The difference between a tax preparer and a tax advisor. A tax preparer takes what happened and puts it on a form. A tax advisor helps you make decisions before they happen, so you're not paying more than you should. Crypto inside an S corporation has too many moving parts, too many timing decisions, too many opportunities to save for you to just hand it to someone at the end of the year. You need someone who understands cost basis strategies, holding periods, and how every transaction flows through to your personal return. Don't wait until March to find out you made the wrong moves. Work with a tax advisor proactively. That's how you stay ahead of this. Now, remember at the beginning, I mentioned a retirement account strategy that could let you invest in crypto tax-free. This is it. And it's one that most S corporation owners I talk to have never even heard of. It's called a self-directed solo 401k. Here's how it works. As an S corporation owner, you're likely already eligible to contribute to a solo 401k based on your W-2 compensation from the S corporation. Now, a standard solo 401k limits your investments to stocks, bonds, and mutual funds. But a self-directed solo 401k allows alternative investments, including cryptocurrency. And here's where it gets powerful. When crypto is held inside a self-directed solo 401k, the gains are either tax deferred in a traditional account or completely tax-free in a Roth account. You don't recognize income every time you sell or trade crypto within the account. No tracking taxable events inside the plan. No 3.8% net investment income tax. For an active crypto investor, that is a dramatic difference compared to holding crypto directly in your S corporation. Now you do need to work with a custodian. That allows crypto investments in a self-directed plan. The usual prohibited transaction rules still apply. And annual contribution limits apply based on your reasonable W-2 compensation from the S corporation. But for the right person, this strategy is extremely powerful. And it's exactly the kind of thing you should be discussing with your tax advisor, not your tax preparer, your tax advisor, someone who can look at your situation, your compensation, your crypto activity, and tell you whether this makes sense for you. Let me leave you with a quick summary of what we covered today. Your S corporation can absolutely hold and transact in crypto, but the IRS treats it as property, which means every transaction is a taxable event. Long-term gains get preferential rates and pass through directly to your personal return. Accepting crypto as payment from a client creates ordinary income at fair market value. You need to track cost basis for every single acquisition. Losses can be harvested without the wash sale restriction, and a self-directed solo 401k can let you invest in crypto, tax deferred, or even tax-free. These are the rules. And now that you know them, you can make smart decisions for your business.

SPEAKER_00 13:54

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to www.taxplanningcall.com. That's www.taxplanningcall.com. And be sure to subscribe to our podcast to be notified when the next strategy is released.