Paid in crypto – what’s next? By BTC Peers

Cryptocurrencies are everywhere, with digital assets from DeFi to NFTs becoming increasingly popular in recent years.

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

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

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

Likewise, freelancers have moved to accept stablecoins like USDC and USDT for payment, while some smaller companies and crypto-native firms now offer salaries in crypto as well.

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

So while getting paid in crypto may seem exciting and reasonably easy, there are some important implications worth considering before you get started.

How regulated are cryptocurrencies?

Cryptocurrency regulation is increasing globally as governments try to shape their policy responses to this new asset class. As crypto adoption grows, regulators will release their policy approaches in the coming months and years. One area of ​​regulation that has moved quickly in this area is taxation – on the back of significant investor profits in recent years, crypto gains are being taxed in many countries globally.

Countries have adopted different approaches, with Singapore and Germany welcoming crypto businesses, while China has banned crypto mining.

While some participants in the crypto space believe that regulation runs counter to the mantra of ‘decentralization’, others, such as corporate Bitcoin supporter Michael Saylor (the former CEO of MicroStrategy), have encouraged regulatory involvement to avoid retail participants being misled or losing their money. .

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

How is crypto tax paid?

With the increased adoption 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 globally generally view being paid in crypto the same as paying in fiat currencies.

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

For example, if you receive stablecoins (typically 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 number of tokens you received – ie 2000 USDC = US$2000.

On the other hand, if you prefer to be paid in a cryptocurrency such as Bitcoin, , or another cryptocurrency, you need to calculate the value of your income on the day you were sent the crypto. For example, if you received 0.1 BTC as monthly salary, this will be calculated as its real market value (say USD 2000). In this scenario, you will have to pay income tax at the regular income tax rate.

While you received the same amount in both scenarios, $2,000, there may be different implications if you were paid in Bitcoin, as the price is likely to fluctuate after you are paid.

What if the crypto value changes?

Calculating the tax you owe on your income may seem simple at first. However, you will probably want to hold onto crypto assets beyond the day you get paid. For example, if you sell, exchange or use this crypto, you need to consider any capital gains tax (CGT) obligations. Again, this depends on whether your country has a CGT regime, as some countries, such as Singapore, do not.

If CGT applies, if a few months after you received 0.1BTC as monthly salary, you see that the value of 0.1BTC is now USD 3000, so you decide to sell it 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 earn capital gains on the additional $1,000 gain you made.

To calculate the CGT liability, subtract the cost basis (the price of the asset on the day you received it + any charges associated with disposing of it) from the price you sold the asset for. In this case, USD 3000 – USD 2000 = USD 1000. How you are taxed on these capital gains will vary from country to country and how much you earn. If you find yourself earning crypto and trading frequently, it is important to seek the advice of 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 immutable. This means that if you lose the private key to your wallet that contains your crypto tokens, your earnings (and any other digital assets in your wallet) could be lost forever.

This may sound scary, but there are many options, 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.

All in all, should I get paid in crypto?

There are both advantages and disadvantages to getting paid in crypto. So there is no simple answer to this question. Before making any decisions, it is crucial to understand the risks and, if necessary, seek advice from a qualified professional.

More and more people are realizing that crypto and the blockchain technology that underpins it can open up opportunities for employees around the world. However, cryptocurrencies are a volatile asset class and it is critical to ensure you understand how to hold, store, exchange and sell the crypto you receive. 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 tax report that complies with your tax office in minutes.

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