Blockchain technology has generated more hype — and more confusion — than almost any other technology trend of the past decade. For the average Utah small business owner, sorting out what blockchain actually is, what it practically affects, and what you need to know for tax compliance can feel daunting.
This article focuses on the practical: what blockchain means for your business finances, specifically cryptocurrency tax reporting, digital asset accounting, and the emerging financial applications that may affect small businesses over the next several years.
What Blockchain Is (Briefly)
A blockchain is a distributed ledger — a database that is shared across many computers rather than controlled by a single entity. Each record (block) is cryptographically linked to the previous one, making the ledger tamper-resistant. No single party can alter a record without altering every subsequent block on every copy of the ledger.
This structure makes blockchain well-suited for:
- Cryptocurrency: Recording transactions without a central bank (Bitcoin, Ethereum)
- Smart contracts: Self-executing agreements written in code that automatically perform when conditions are met
- Digital ownership records: Non-fungible tokens (NFTs), digital art, real estate titles, supply chain provenance
For small business owners, the most immediate practical relevance is cryptocurrency — and its tax treatment.
Cryptocurrency Tax Treatment: What Every Business Owner Must Know
The IRS Position
The IRS treats cryptocurrency as property, not currency. This has been the IRS position since Notice 2014-21 and has been consistently reaffirmed. Every transaction involving cryptocurrency is a taxable event — with few exceptions.
Taxable events include:
- Selling cryptocurrency for dollars (or other fiat currency)
- Trading one cryptocurrency for another (e.g., Bitcoin for Ethereum)
- Using cryptocurrency to purchase goods or services
- Receiving cryptocurrency as payment for business services
- Mining cryptocurrency (taxed as ordinary income at the time of receipt)
- Receiving cryptocurrency as staking rewards
Non-taxable events include:
- Buying cryptocurrency with dollars (not a taxable event at purchase — creates cost basis)
- Transferring cryptocurrency between wallets you own
- Receiving cryptocurrency as a gift (taxable to the giver only at certain amounts)
Capital Gains Treatment
When you sell or exchange cryptocurrency held as an investment:
- Short-term capital gain: Cryptocurrency held one year or less — taxed as ordinary income (up to 37% federal, 4.65% Utah)
- Long-term capital gain: Cryptocurrency held more than one year — taxed at preferential rates (0%, 15%, or 20% federal depending on income, plus 4.65% Utah flat rate)
Basis tracking is essential. Every purchase of cryptocurrency creates a cost basis record. When you sell, you calculate gain or loss as proceeds minus basis. With frequent trading, basis tracking becomes complex — use FIFO (first-in, first-out), specific identification, or another IRS-acceptable method, and document your choice.
Business Payments in Cryptocurrency
If your business accepts cryptocurrency as payment for goods or services:
- The fair market value (FMV) of the cryptocurrency on the date received is ordinary business income
- This creates a tax basis in the cryptocurrency equal to the FMV at receipt
- When you later sell or use the cryptocurrency, the gain or loss is calculated from that basis
Accounting treatment: Record the FMV of cryptocurrency received as revenue in your accounting software at the time of receipt. Track the basis separately. This is one of the areas where accounting software has not yet automated well — many businesses use spreadsheets or specialized crypto accounting tools (CoinTracker, Koinly, TaxBit) to track basis and transactions.
New 1099-DA Reporting Requirements (2025)
Beginning with transactions in 2025, digital asset brokers (centralized crypto exchanges — Coinbase, Kraken, etc.) are required to issue Form 1099-DA reporting proceeds from digital asset sales to customers and to the IRS. This brings cryptocurrency reporting in line with traditional securities (stocks, bonds) reporting.
What this means for your business:
- If you sell cryptocurrency through a centralized exchange in 2025 or later, you will receive a 1099-DA
- The IRS will receive the same information — discrepancies between your return and 1099-DA reporting will generate automatic notices
- Decentralized exchanges (DEX transactions) are not covered by the initial 1099-DA rules but remain taxable
Utah Digital Asset Laws
Utah has been relatively active in digital asset legislation:
- Utah Digital Assets Act: Provides legal recognition of blockchain records and digital asset ownership under Utah law
- No Utah-specific capital gains preference: Utah taxes long-term capital gains at the same 4.65% flat rate as all other income — there is no Utah preferential rate for cryptocurrency gains
Blockchain Applications in Business Finance
Beyond cryptocurrency, blockchain technology is finding applications in business finance that may touch small businesses indirectly:
Smart Contracts
Smart contracts are self-executing contracts written in blockchain code. When predefined conditions are met, the contract executes automatically — without intermediaries. Use cases relevant to business:
- Escrow automation: Payment released automatically when delivery conditions are verified (supply chain, real estate transactions)
- Royalty payments: Automatic royalty distribution when content is accessed or sold
- Supply chain payments: Payment triggered when goods arrive and quality conditions are verified
For most Utah small businesses, smart contracts remain in the “watch” category rather than immediate action. The legal and tax treatment of smart contract-based transactions is still developing.
Stablecoins and Business Payments
Stablecoins (cryptocurrency pegged to a fiat currency, most commonly the US dollar) are used in some business-to-business payment contexts, particularly for cross-border transactions, to reduce transfer fees and processing time.
Stablecoins that maintain a consistent $1 peg may have minimal capital gain/loss at the transaction level — but they are still treated as property for tax purposes, and any deviation from the $1 peg creates a taxable gain or loss.
Tokenized Assets and NFTs
Non-fungible tokens (NFTs) represent unique digital ownership — digital art, collectibles, gaming items, and increasingly, real-world asset representations (real estate titles, luxury goods provenance, intellectual property rights). For business finance purposes:
- NFTs created and sold by a business are taxable as ordinary business income
- NFTs purchased and later sold generate capital gains or losses based on holding period
- NFT royalties received are ordinary income
NFT markets experienced dramatic speculation and subsequent decline in 2021–2023. For most small businesses, NFTs are a peripheral consideration rather than a core financial tool.
Central Bank Digital Currencies (CBDCs)
The Federal Reserve is exploring a US central bank digital currency (CBDC) — a digital dollar issued by the Fed rather than by private cryptocurrency networks. A US CBDC would have immediate legal tender status and would not have the volatility of Bitcoin or Ethereum.
A US CBDC remains in research and development stages. No implementation timeline has been announced. The tax and accounting implications of a CBDC would differ from cryptocurrency (it would be treated as currency, not property) and are too speculative to plan around.
What Your Business Should Actually Do
If your business accepts cryptocurrency payments or holds digital assets:
- Use a dedicated crypto accounting tool (CoinTracker, Koinly, TaxBit) to track basis and transactions by wallet and exchange
- Export year-end reports to provide to your CPA alongside your accounting software data
- Reconcile cryptocurrency transactions in your accounting software — record FMV of crypto received as revenue and create a separate asset account for cryptocurrency holdings
- Plan for tax payments on any realized gains — cryptocurrency gains can create significant cash tax obligations if the cryptocurrency has been held long-term
If your business does not touch cryptocurrency:
- Be aware of the 1099-DA rules — if your business begins accepting crypto payments in 2025 or later, new reporting obligations apply
- Watch for digital asset provisions in the TCJA sunset legislation and other 2025 tax law changes
- No immediate action required
Questions to ask your CPA:
- Have I correctly reported all cryptocurrency transactions on my current and prior-year returns?
- What basis-tracking method should I use?
- Does my accounting software handle crypto transactions accurately, or do I need a supplemental tool?
Call (801) 927-1337 or email admin@cpaone.net to discuss cryptocurrency tax compliance and digital asset accounting for your Utah business. The IRS enforcement focus on digital asset non-compliance is intensifying — getting it right now is far less expensive than responding to a notice later.
About the Author: Missy Dennis, CPA is a Partner at FJ & Associates, PLLC in Kaysville, Utah. She holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant. With more than twenty years of public accounting experience, Missy specializes in tax preparation and tax advisory, bookkeeping strategy alignment, estate and trust taxation, audit and consulting services, low-income housing tax credits, non-profit accounting, and small- and mid-sized business advisory. She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence.
