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Your Crypto Tax Answers

Learn about crypto taxes in the US, Australia, and Germany with insights from professional crypto tax accountants while discovering the best crypto tools in the market.

Do you pay taxes for receiving Bitcoin tips?

Updated: Jun 21, 2022

Is receiving tips in Bitcoin from Twitter a taxable event in the US? Do you have to pay taxes when receiving tips in Bitcoin, regardless of the medium you’re using?

Recently, Twitter enabled a new feature on the popular platform to allow creators to receive tips in Bitcoin as a reward for their valuable content. The concept of tips is not new, but if you’re in the US, you should consider the tax implications of receiving Bitcoin in the form of a tip.

Let’s explore all the tax details about Bitcoin tips.

In this article:

Is receiving Bitcoin tips taxable?

According to the IRS crypto tax guidelines, receiving crypto as tips is a taxable event. As a result, any taxpayer who receives tips (in FIAT or crypto) must recognize income upon receipt. When you receive Bitcoin or any crypto as tips, you must determine its Fair Market Value (FMV), measured in USD when you receive them.

The FMV of Bitcoin tips must be reported as income at the time of receipt, adding to your total income, which you’ll pay income taxes on. If you receive Bitcoin tips from Twitter or any other platform for your content, you must follow these guidelines.

Here’s how to report your taxes on Bitcoin tips:

  1. Determine the Fair Market Value (in USD) of the tips upon receipt.

  2. Keep a record of all your transactions, with amounts received, dates, Fair Market Value, and more, with the help of a crypto tax software such as CoinTracking.

  3. Report all your tips as ordinary income on your income tax return.

Do I pay taxes if I later sell my Bitcoin tips?

Yes. If you later sell the Bitcoin you received as tips, you’ll have a taxable event and be subject to capital gains taxes. If the crypto you received as tips gained in value, you’ll certainly have a capital gain when you sell the crypto, which is taxable.

Every crypto-to-crypto or crypto-to-FIAT trade in the US is a taxable event. If you receive Bitcoin from tips and then sell it in USD, you’ll need to calculate your gain/loss and report the trade on your tax return.

Let’s look at an example.

Do I pay capital gains if I sell my Bitcoin tips?

Imagine that Sarah received 0.01 BTC in tips from Twitter in October 2021. At that time, 1 Bitcoin was $50K. As a result, the Fair Market Value of the Bitcoin Sarah received is $500. The $500 will become her cost basis for the future sale of her 0.01 BTC.

In January 2022, Sarah decides to sell her Bitcoin. Let’s suppose that at that time, 1 Bitcoin is worth $100K. Sarah’s total sale proceeds will be $1000 (0.01 BTC x $100K). As a result, her gain will be the difference between the sales proceeds and cost basis, which is $500 ($1,000-$500).

Since Sarah is selling her Bitcoin before holding it for more than 12 months, she’ll face a short-term capital gains tax rate instead of a long-term tax rate. The short-term capital gains tax rate can range from 10% to 37%, depending on other factors (e.g., filing status).

If Sarah held for more than 12 months before selling her Bitcoin, she would have a lower tax liability, with a long-term capital gains tax rate ranging from 0% to 20%. Various countries offer bigger tax advantages for long-term crypto investors.

Do I pay taxes when receiving Bitcoin from a hobby?

If you receive any crypto (including Bitcoin) from a hobby activity in the US, you’ll have to report that as ordinary income (not subject to self-employment tax). You must assess the Fair Market Value (in USD) of the crypto you received and report it on your income tax return.

Do I pay taxes from receiving Bitcoin as a salary?

If you receive your salary in Bitcoin, you must report it as W-2 income on your income tax return. If you receive a fixed USD amount worth of Bitcoin each month (e.g., $5K worth of Bitcoin), it is easier to report the cost basis (Fair Market Value) as it is always $5K. In that scenario, you would report $60K as annual income.

However, if you receive an amount in Bitcoin, your fair market value will change each month, increasing the complexity of tracking all your payments.

A crypto tax software like CoinTracking can help you keep track of all your payments in crypto without needing a manual tracking system.

How to report Bitcoin tips?

You must keep a detailed record of all your crypto transactions, including the tips you receive in crypto. When you receive them, you must determine their Fair Market Value (in USD) at the time of receipt.

All the tips you receive during the year must be assessed by following this method and then reported on your tax return. Receiving compensation from services or tips adds to your total income and is subject to income taxes. The final tax rate will depend on many factors, including your deductions, filing status, total taxable income, etc.

Nevertheless, you must report all of this income on your income tax return for the year. Check this guide on how to report crypto on taxes for more information.

Sign-up to CoinTracking today!

Do you pay taxes on Twitter Bitcoin tips?

Yes. Here’s how to report your taxes on Bitcoin tips:

  1. Determine the Fair Market Value (in USD) when receiving the tips.

  2. Keep a record of all your transactions, with amounts received, dates, fair market values, and more, with the help of a crypto tax software.

  3. Report all your tips as ordinary income on your income tax return.

Learn how you can import your Bitcoin tips into CoinTracking:

The best crypto tax software: CoinTracking

CoinTracking covers all your crypto tax needs. With CoinTracking, you can:

  1. Import (API & CSV) your trades from 110+ exchanges.

  2. DeFi and NFT support with our ETH+DEX importer.

  3. Import your Binance Chain, Binance Smart Chain, and MATIC transactions.

  4. 25+ advanced reports, including which coins offer you a tax-free rate.

  5. Automatic capital Gains, according to 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.

  6. Generate complete Tax Reports in your country.

Do you have any crypto tax questions? Check our Full Service in the US

CoinTracking also offers a full service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.

This can be particularly useful on grey-area matters such as taxes concerning wrapping assets, liquidity pools, yield farming, and others where the tax guidance is still emerging.

Clarify all your crypto tax questions:

  1. DeFi Taxes: The Complete Guide.

  2. How to calculate taxes with Bitcoin dollar-cost averaging?

  3. Do you pay tax on stolen, hacked, or lost crypto?

  4. FIFO for crypto taxes? Implications of accounting methods.

  5. NFT Taxes: The Complete Guide.

  6. 2021’s NFT guide (with taxes).

  7. Is Bitcoin taxable? The ultimate guide for 2021 taxes.

  8. Do you pay taxes on Bitcoin debit cards purchases?

  9. Is Bitcoin taxable? The ultimate guide for 2021 taxes.

  10. Top crypto tax friendly countries.

  11. How to reduce your crypto taxes?

  12. Crypto tax loss harvesting: Here’s what you need to know

This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 30+ AMA crypto tax reports for free.

Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.

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