“What’s worth doing is worth doing for money.” Gordon Gekko, Wall Street
Doesn’t it feel like all the cool kids are using Bitcoin?
Bitcoin was the big buzzword of the last year. If you own a small business or run an e-commerce site, I bet you are wondering if you should accept it for payment.
Here’s a quick primer on Bitcoin. Bitcoin is basically a digital token-with no physical backing-that can be sent electronically from one user to another, anywhere in the world. Bitcoin is also the name of the payment network on which Bitcoin tokens are stored and moved.
Unlike traditional payment networks like American Express, the Bitcoin network is not run by a single company or person. It’s run by a decentralized network of computers all over the world that keep track of Bitcoin transactions.
It’s primarily used for online transactions, but more and more brick and mortar businesses are accepting them.
The big kicker? It’s highly volatile. A single Bitcoin was worth $2 in 2011, $1,179.97 one year ago, $18,960.52 two months ago, and $9,583.76 today.
If you are a small business owner or run an e-commerce site, there are many reasons why you would want to consider accepting Bitcoin as payment:
- Lower or no transaction fees. Bitcoin transactions cost between 0 and 1 percent because Bitcoin doesn’t need a bank to verify every transaction.
- Get paid quickly. Because there are no financial institutions for the money to go through, money will hit your bank account more quickly, typically within a couple of days.
- Fraud protection. When your customer uses a credit or debit card for payment, personal information such as name, birthdate, and address is needed to process the payment, exposing your customer to potential fraud. Payments with Bitcoin are done anonymously and your customers do not need to disclose personal information.
There’s lots of upside to accepting Bitcoin as payment, but what are the legal issues you need to consider before you accept Bitcoin as payment?
The tax man cometh. Yes, you have to pay taxes on Bitcoins
Remember what I said above about Bitcoins being really volatile? It’s entirely possible that the Bitcoins you accept as payment today could substantially increase in value quickly.
Woo hoo! Free money!
Slow down, circus clown. Don’t celebrate yet.
The Treasury Department has made it abundantly clear that Bitcoin is considered “property.” See the IRS’s Virtual Currency Guidance, released in March 2014. Why does this matter? You have to pay taxes on any increase in the value of your Bitcoin holdings. This is true, even if you don’t sell any of your Bitcoins or if the price of the Bitcoins goes down in value before you file taxes.
Be sure to let your accountant know if you accept Bitcoins as payment because you will probably have capital gains to report.
Don’t pay your employees in Bitcoins
Thinking about using some of those Bitcoins to cover payroll? Think again.
While there is no federal law prohibiting paying your employees in Bitcoin, if the price of Bitcoins drops dramatically in value, you could be subject to a wage and hours claim.
Bitcoins and refunds
If you decide to accept Bitcoins as payment, you may need to rethink your return policy.
For example, let’s say a customer purchases one Bitcoin worth of merchandise from you when the value of a Bitcoin is $1,000. When the customer later decides to return the merchandise, the value of one Bitcoin is $1,100. Do you owe the customer $1,000 or $1,100?
One solution to this problem is offering only store credit for returns so you place the risk of currency fluctuations on the customer.
Before you consider accepting Bitcoin as payment, be sure to consult with an attorney and a tax advisor to make sure your business complies with all federal, state, and local laws.
Does your business accept Bitcoin? Leave a comment or send me an e-mail.
Disclaimer: This website is made available for educational purposes only as well as to give general information and a general understanding of the law, not to provide specific legal advice. By using this website you understand that there is no attorney client relationship between you and the publisher. The website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
Copyright © 2018 by Siobhán Fitzpatrick Kratovil. All Rights Reserved.