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Scan this to-do list before accepting cryptocurrency payments

Posted by Deepshikha Shukla

February 16, 2022    |     5-minute read (916 words)

Cryptocurrency is a digital currency, independent of banks or governments, that can be used to buy or sell goods and services. Since the first cryptocurrency — Bitcoin — was introduced in 2009, over 10,000 cryptocurrencies have been developed. There are an array of benefits for adopting cryptocurrency for your business, like:

• Increasing your international reach. 
• Achieving better security due to the decentralized nature of cryptocurrency. 
• Faster payments. 
• Lower processing fees. 
• Elimination of dreaded chargeback fees. 

Using cryptocurrency for payments is not without downsides, such as volatility and the risk of cyberattack. However, depending on how you adopt crypto payments, you can minimize these risks and maximize the rewards. 

Before accepting crypto payments, be sure you:

1. Speak to your lawyer and accountant

Before accepting cryptocurrency, consider that it will require new bookkeeping steps, and find out what taxes and fees will be applicable. Cryptocurrency is considered property by the IRS, which means you will be subject to capital gains tax when selling it. 

To be sure you’ve covered your bases in an area that is still evolving in terms of taxation and regulation, speak to a lawyer or accountant who is experienced in matters relating to cryptocurrency. You also need to address how information from your point-of-sale system will be delivered to your accountant. Your lawyer or accountant can also help you procure insurance to cover issues related to data security breaches and cybercrime losses.

2. Create a clear policy for customer refunds

Businesses planning to accept cryptocurrency should be prepared for the possibility of customers who request refunds. Set up processes and rules for handling cryptocurrency refund payments in accordance with the regulations in your jurisdiction. Failing to do so in certain areas could expose you to serious legal charges.

3. Weigh the pros and cons

Companies should investigate whether there is existing customer demand for paying in cryptocurrency for its products or services — or whether accepting it might attract new clients. Because it may be accompanied by additional complexities in terms of taxes and rules, businesses are advised to accept crypto payments only for large purchases with a strong profit margin. 

4. Establish a cryptocurrency wallet

A crypto wallet works just like a bank account. You use it to send, receive and keep digital money. It’s best to use a wallet that allows you to store different types of cryptocurrencies, sparing you the inconvenience of opening many crypto wallets to accommodate different cryptocurrencies. Your crypto wallet allows you to buy, store and sell multiple types of cryptocurrencies. 

Things to consider while choosing the best multi-cryptocurrency wallet are:

• The number of cryptocurrencies it supports. There are thousands of cryptocurrencies, but not all of them are accepted on every service.
• Whether it offers low purchase and transaction fees.
• Its ability to integrate with other software wallets.
• Its safety and security.
• Its ability to link with other apps.

5. Find a crypto payment processor

Crypto payment processors allow users to convert any crypto payments they receive into cash or government-issued currency. They can set up processes to help merchants directly accept crypto payments from customers anywhere in the world. 

Payment processors, such as Coinbase, BitPay and PayPal, can help you set up website payment gateways for crypto transactions. Before selecting a payment processor, make sure its systems are secure and that it can accept different cryptocurrencies and seamlessly exchange them into the currency of your choice.

Your payment processor should provide a cryptocurrency gateway that: 

• Has low transaction fees.
• Provides customer support in many countries.
• Supports various types of cryptocurrency.
• Has no minimum balance and payout restrictions.
• Can settle your payments in multiple currencies.
• Has a good reputation and positive reviews.
• Has a secure sign-in and user verification process.

6. Add crypto payments to your website

For integrating crypto payments into your website, you will need to sign up on a crypto payment gateway. Crypto processors provide several ways in which you can accept cryptocurrency as payment on your website, such as payment buttons, invoicing or accepting them in-person through QR codes. Companies will also need to practice the "know your customer (KYC)" rule to track their crypto transactions.

7. Set up a QR code or wallet address to accept payments

Every cryptocurrency wallet comes with a unique address, an alphanumeric string, that can be shared with others to receive payments. Wallets also allow users to convert the address into a scannable QR code to accept crypto payments. While all crypto wallets also come with unique private keys, digital wallets often have options to log in using passwords to keep your currency safe and accessible.

8. Consider cryptocurrency’s tax implications

Before accepting cryptocurrency as a form of payment, make sure you’re clear on the tax implications and reporting requirements for taking digital currencies. According to the IRS, all cryptocurrencies are capital assets and therefore are subject to capital gains tax. So, when you use cryptocurrency to make purchases, and the coins you sell are worth more than what you bought them for, you’ll have to pay capital gains tax in addition to applicable sales tax.

Because cryptocurrencies are treated like property for purposes of taxation, “each use of crypto creates a tax realization event, potentially creating an administrative burden for the sender and the recipient," said Sung Choi, vice president of business development at digital currency exchange Coinme. "To avoid complexity, it may be better to limit using crypto for payments to more significant value transactions, such as buying a car,” Choi said.

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