Cryptocurrency has been on the forefront, especially in the the last 12 months; should companies begin thinking about paying their employees with cash and cryptocurrency? Though “crypto compensation” has not exactly materialized into companies, it soon could be.
Already in Japan, GMO Internet, a web-based business offers its employees a combination of cash and crypto. Of course, employees have the option to receive a pure-cash salary, but with prices surging, it’s an interesting compensation alternative.
Though paying employees in Bitcoin or another cryptocurrency may attract tech-savvy talent to your organization, there are a few considerations. Firstly, it still remains a rather risky investment with fluctuating prices and evolving markets. Secondly, corporate taxes regarding cryptocurrency salary remains complicated. .
Talking taxes may not be the sexiest thing to learn about, but as American inventor Benjamin Franklin once said, “In this world, nothing can be said to be certain except death and taxes”. When it comes to cryptocurrency taxes, though, complexity is the big mainstay.
If you’re not sure what cryptocurrency is and what it does, here’s a quick summary:
A cryptocurrency is a “virtual currency” that can be used to buy or sell goods or services. Often, cryptocurrencies can be traded for another, much like standard currency. Depending on where you live in the world, a cryptocurrency may or may not be recognized as an official currency. For example, in the United States, it’s considered an “intangible asset”, not a sovereign currency.
In the U.S., it is treated like a property, like bonds, stocks, or other investment properties. For example, if you buy Bitcoins with U.S. dollars and later sell them for U.S. dollars, a capital gain or loss needs to be reported on that transaction. An exchange of one cryptocurrency for another cryptocurrency is a taxable sale transaction, even though U.S. dollars are not involved in the transaction.
Whoa, you may be thinking, this sounds like a confusing amount of work.
You’d be right.
Joshua Ashley Klayman, a premier attorney focusing on blockchain and cryptocurrency, reaffirms it’s complexity—and it’s essentialness.
“Token purchasers should carefully track their token purchases and sales, as they may be responsible for paying taxes that they could owe…The changes arguably add complexity to some token purchasers’ tax calculations and may create a significant need in the market”.
If you’re thinking of paying employee salary with a combination of cryptocurrency and cash, be sure to have a solid system in place to track token purchase and usage.
If you’re interested in how to start setting up a company system to track tokens for employee compensation, it’s a wild world out there. Fortunately, we’ve found a few of the best existing systems that help you with your cryptocurrency tax documentation.
This platform does a big hunk of the grunt work by allowing users to import data from the plethora of currency exchanges and create a single document that they use when filing their taxes. Otherwise a person would have to manually insert all disparate information into an Excel sheet.
Known to be “the only mobile tax franchise system with 100% CPA prepared returns”, Crypto Tax Prep is an excellent avenue for those wishing a professional to handle the heavy work. It’s a more tailored solution that offers free auditing services, if the IRS comes a callin’.
Born out of need, the founders created their own tool to track their own cryptocurrencies. Soon, friends started wanting this tool that pulls balances and transactions and delivers tax information to its customers.
Crypto-compensation may be a fantastic tech-forward solution for companies in attracting and retaining the best people. If curious, best to start thinking about how you’ll move forward.
Death and taxes….not so much…
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