Paid in Cryptocurrency – What Happens Next? By BTC peers

Paid in Cryptocurrency – What Happens Next?

Cryptocurrencies are everywhere, with digital assets from DeFi to NFTs becoming increasingly popular over the past few years.

The entire crypto space has become woven into the fabric of society, with blockchain and distributed ledger technologies now powering entire industries and supply chains. Crypto is now much more than fair – and some enthusiasts have even started receiving their salaries in crypto.

Celebrities and athletes, including Odell Beckahm Jr. of the NFL, Golden State Warriors players of the NBA, and even the mayors of Miami and New York, have chosen to receive their salaries in Bitcoin or crypto.

Tech giants like Microsoft (NASDAQ:) and Tesla (NASDAQ:) already accept Bitcoin and other cryptocurrencies (like ) as payment for goods and services.

Similarly, freelancers have moved to accept stablecoins like USDC and USDT for payment, while some small businesses and crypto-native businesses are now offering crypto salaries as well.

Recent statistics from Australia show that the majority of crypto investors are under the age of 35, with around one in ten people in that age group holding crypto in their wallets.

So while getting paid in crypto may sound exciting and reasonably simple, there are some important implications worth considering before you begin.

How regulated are cryptocurrencies?

Cryptocurrency regulation is increasing globally as authorities seek to craft their policy response to this new asset class. As crypto adoption grows, regulators will release their policy approaches in the months and years to come. One area of ​​regulation that has evolved rapidly in this space is taxation – thanks to substantial investor profits in recent years, crypto earnings are taxed in many countries around the world.

Countries have taken various approaches, with Singapore and Germany welcoming crypto firms, while China has imposed bans on crypto mining.

While some participants within the crypto space believe that regulation goes against the “decentralization” mantra, others, such as Bitcoin proponent Michael Saylor (the former CEO of MicroStrategy), have encouraged regulatory involvement to prevent retail participants from being misled or losing their funds. .

Adoption of cryptocurrencies has also come from nation states, with El Salvador legalizing Bitcoin as the national currency and legal tender in the Central American country.

How is payment in crypto taxed?

With the increase in the use of cryptocurrencies, there are several tax implications that investors and businesses that interact with the crypto ecosystem must consider. Depending on where you live, tax offices around the world generally consider being paid in crypto the same as being paid in fiat currency.

In many jurisdictions, including the UK and Australia, your crypto salary is likely considered income by your local tax office and as such will generally be subject to income tax at your usual income tax rate for your tax bracket. The tax you will pay is usually calculated as the fair market value of the cryptocurrency on the day you receive it.

For example, if you receive stablecoins (usually 1:1 pegged to the value of a fiat currency like the US dollar), this won’t be too difficult to calculate. The total amount of USDC, USDT, DAI or other selected stablecoin can be easily marked as the value of the total amount of tokens you received – i.e. 2000 USDC = 2000 USD.

On the other hand, if you prefer to be paid in a cryptocurrency such as Bitcoin, , or another cryptocurrency, you will need to calculate the value of your earnings on the day the crypto is sent. For example, if you received 0.1 BTC as your monthly salary, that would be calculated as its fair market value (say $2,000). In this scenario, you will have to pay income tax at your usual tax rate.

Although you received the same amount in both scenarios, $2,000, there may be other implications if you were paid in Bitcoin, as the price will likely fluctuate after being paid.

What if the value of your crypto changes?

Calculating the tax you owe on your income may seem simple at first. However, you are likely to keep the crypto assets beyond the day you get paid. For example, if you sell, trade, or spend this crypto, you will need to consider all capital gains tax (CGT) obligations. Again, this depends on whether your country has a CGT scheme, as some countries, such as Singapore, do not.

If CGT applies, if a few months after receiving your 0.1 BTC as your monthly salary, you see that the value of your 0.1 BTC is now 3,000 USD, so you decide to sell it now for USD. Initially, you owed income tax on the $2,000 salary (the value of 0.1 BTC on the day you received it), but in addition, you will now also realize capital gains on the extra $1,000 you made.

To calculate your CGT liability, subtract your cost basis (the price of the asset on the day you received it + any costs associated with its disposal) from the price at which you sold the asset. In this case, $3,000 – $2,000 = $1,000. How you are taxed on these capital gains varies by country and how much you earn. If you find yourself earning crypto and trading frequently, it is important to seek advice from a qualified accountant or tax advisor.

Can I lose my crypto earnings?

The blockchain technology that underpins cryptocurrencies means that transaction data is immutable or unchangeable. This means that if you lose your wallet’s private key that contains your crypto tokens, your earnings (and any other digital assets in your wallet) could be lost forever.

It might sound scary, but there are plenty of alternatives, such as using exchange wallets, setting up a hot or cold storage wallet, a software wallet on your phone, or a hardware wallet using a Ledger or Trezor.

Overall, should I get paid in crypto?

There are both pros and cons to being paid in crypto. So there is no easy answer to this question. Before making any decision, it is crucial to understand the risks and, if necessary, to seek advice from a qualified professional.

More and more people are realizing that crypto and the blockchain technology behind it can open up opportunities for employees around the world. However, cryptocurrencies are a volatile asset class and making sure you understand how to hold, store, trade and sell the crypto you receive as your salary is crucial. It is important to consider your investment strategy when choosing to earn or buy crypto, and always do your research!

You can also use helpful tools to calculate your crypto taxes – which can save you valuable time by reconciling all your holdings and generating a compliant tax report for your tax office in minutes.

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