Lands on Schedule C, Part I — Gross receipts — at the coin's dollar value when it arrived
If you are an employee paid in crypto, this article is not for you. The IRS treats that as wages — subject to withholding and reported on a W-2 — and your employer does the reporting. This is for freelancers and independent contractors whose clients pay them in a digital asset.
A client pays an invoice in crypto. It feels like being paid in something other than money, and so it is easy to treat it as not quite income until it is converted.
The IRS does not see it that way. It sees two separate events — the day you were paid, and the day you later sold, swapped or spent what you were paid with — and it taxes them differently.
The short answer
| The day it arrives | The day you sell, swap or spend it | |
|---|---|---|
| What it is | Ordinary business income | A disposal of a capital asset |
| Measured at | Dollar value when received | Proceeds minus your basis |
| Where it goes | Schedule C | Form 8949 and Schedule D |
| Self-employment tax | Yes | No |
| Fixed or moving | Fixed that day | Depends on the price that day |
The day the coins arrive
The IRS answers the first question directly:
"If you receive property, including digital assets, in exchange for performing services, whether or not you perform the services as an employee, you recognize ordinary income."
And it says how much:
"The amount of ordinary income you must recognize is the fair market value of the digital assets, measured in U.S. dollars, when received."
For an independent contractor, that income goes where the rest of your business income goes — the IRS says to "report the digital asset income on Schedule C" — and it carries self-employment tax like any other receipt:
"the fair market value of digital assets received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to self-employment tax."
So the coin's dollar value at the moment it reached you is the number. Write it down that day, with the time and where the price came from. It is the one figure the rest of this depends on.
The same number becomes your basis
"your basis in the digital assets is the fair market value of the digital assets, measured in U.S. dollars, when received, provided that you include the fair market value of the digital assets in income."
That last clause matters. The basis exists because the income was reported. Skip the income, and you have also skipped the basis that would have protected you when you sold.
The day you sell, swap or spend them
From here the coins are an asset like any other you hold. Selling them for dollars, swapping them for another coin, or spending them is a disposal, and the result is the difference between what you got and your basis.
Here is a whole year of it, with illustrative prices:
| Invoice | $5,000 |
|---|---|
| Paid in coins worth, when received | $5,000 → Schedule C income |
| Self-employment tax on it (15.3% × 92.35%) | about $706 |
| Your basis in those coins | $5,000 |
| Sold four months later for | $4,000 |
| Short-term capital loss | $1,000 |
The coin lost a fifth of its value while you held it. Your business income did not fall with it, and neither did the self-employment tax. The Schedule SE instructions list "Gain or loss from: The sale or exchange of a capital asset" among the items not included in net earnings from self-employment — so the loss lives on Schedule D and never reaches back to Schedule C.
The loss is still worth something. It offsets capital gains in full, and beyond that Topic 409 lets you claim "the lesser of $3,000 ($1,500 if married filing separately) or your total net loss" against other income, carrying the rest forward. What it cannot do is reduce the self-employment tax.
It works the other way too. Had the coins risen to $6,000 before you sold, you would have $5,000 of business income and a $1,000 capital gain — two results, on two schedules.
How long you have held them
"The period during which you held the digital assets (known as the 'holding period') begins on the day after you acquired the digital assets and ends on the day you sell or exchange them."
For payment coins, that is the day after they arrived. A year or less is short-term; more than a year is long-term.
Paid in a stablecoin
A stablecoin is a digital asset like any other for this purpose. The income is its dollar value when received — for a dollar-pegged coin, close to its face amount. And converting it later is still a disposal, with a gain or loss that is usually small but not automatically zero. The IRS is explicit that you "recognize capital gain or loss on their disposition even if your broker does not report the transactions to you."
No form is coming
A client paying in crypto may send no 1099 at all. It does not matter:
"You must report income, gain, or loss from all taxable transactions involving digital assets on your federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return."
That makes your own record of each payment the only record there is — the same position as income that arrives with no form.
What to keep, for every payment
- The invoice, in the currency you billed.
- Date and time received, and the wallet or account it arrived in.
- Units received, and the dollar value at that moment, with its source.
- The same dollar figure as basis, recorded against that wallet — since 2025 basis is tracked wallet by wallet, so it belongs in the record for the wallet that received it.
- What happened to the coins afterwards: sold, swapped or spent, when, and for how much.
And if you move them onto an exchange to sell, the exchange may date them to the transfer rather than to the day you were paid. Your record is what carries the real date and the real basis across — the 1099-DA may show proceeds and nothing else.
The coins may go up or down. The income you earned on the day they arrived does neither.
Common questions
Is crypto I receive for freelance work taxable?
How much income do I report?
Where does it go on my return?
Do I pay self-employment tax on it?
What is my basis in the coins?
The price fell before I sold. Does that reduce my business income?
How much of a capital loss can I use?
When does my holding period start?
My client paid in a stablecoin. Is that different?
No 1099 came. Do I still report it?
This article is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional about your situation.