Lately, we here at Interactive Accountants have seen a lot of growth in the number of ecommerce businesses and websites created. Going back to 2020, we can attribute some of these changes to the pandemic. Being home all the time has created both opportunity and demand for more online businesses. Another piece of the online business world we have seen grow is cryptocurrency. While subject to change, crypto seems to be the new direction that people will take when thinking about money.
With changes for ecommerce and cryptocurrency (hereafter referred to as “crypto”) either on their way or already in motion, there will be many new laws and regulations put into place to help keep track of this new digital market. We want to share some of these expected changes with you.
A big question is whether or not people can use crypto as a form of payment on ecommerce websites. The answer to this is complicated and depends on the individual. For example, say you as a buyer purchase $10 worth of some crypto. Next, some time goes by, and the value of your crypto goes up to $25, which is an unrealized gain. But if you are to make a purchase on an ecommerce website for any product, let's say headphones, as the original buyer of that cryptocurrency, you now need to report on your taxes that $15 gain you made from the increase in the crypto's value upon using it to buy the headphones.
The interesting part of this equation is the ecommerce seller. Assuming this seller accepts crypto as a form of payment on their website, and they are not immediately converting that crypto to cash, they have effectively received $25 worth of crypto. This is now their cost basis in the crypto. Should the seller now use this crypto to purchase more inventory or just convert it to cash as some future point, the seller may have a gain, or loss, to report on the effective “sale” of the crypto they used to make a purchase, or converted to cash.
The reason these transactions are so complicated is because a single purchase is, in reality, a combination of many more background transactions. This can be overwhelming to keep track of, and understandably so. Many ecommerce businesses are relatively new for no other reason than the market platform they use is also unique. However, given the rise in ecommerce websites and cryptocurrency, it is essential to understand every aspect of this new type of transaction. It can be compared to traveling and exchanging your money for the local currency; you're probably going to either make some money or lose some, depending on its comparable value. There is the conversion, the physical purchase, and a reconversion once you're done traveling. Once again, we are seeing that one purchase is, in fact, many, and the online version of this type of dealing is even more complex.
With every change to the way businesses operate there will be some benefits and hopefully only a few drawbacks. Thankfully the biggest con to paying with crypto and working through an ecommerce website that we are seeing right now is that it is challenging to keep track of it all. That being said, it is not impossible or extremely challenging to learn how to navigate your business with crypto in your pocket. One of the biggest benefits of crypto and ecommerce coming together is that they create a highly secure method of exchanging money, even more than debit/credit. When someone pays with crypto, their data isn't stored in the same way that debit/credit transactions are. The nature of this creates a more secure method of payment that avoids having data collected and stored in the information logs that typically lead to identity theft. Without having the purchase be stored in a centralized digital location, the opportunities for theft are significantly reduced.
As time progresses and ecommerce/cryptocurrency purchases and exchanges continue to grow in popularity and accessibility, there are a few key ideas to take with you, the first of which is to pat yourself on the back for grasping this very interwoven concept. The next step is to evaluate where you and your business stand on the idea of accepting cryptocurrency as payment. If the answer to that question is yes, you have a few things you should do. Primarily is to establish an online brokerage account with a website or format of your choosing; this is necessary to have a place to be paid with crypto. The next advisable step is to get your books in order, this may seem like a simple suggestion, and it is. However, the point is that you want to know everything going on with your business before you expand to an entirely new form of payment and online market involvement.
The next piece of advice we can give is to get financial consulting, our team has made it a mission to stay at the forefront of the knowledge and changes involved in this concept. Due to the still-growing nature of this market, there are still chances that we will likely see, and we can help guide you and your ecommerce business through them. There are always bound to be more nuances to a new market than any one person can keep track of, but we can help you get started.
Here at Interactive Accountants, helping businesses grow and succeed financially is our number one goal. We are here to help! If you are a professional in any field that cryptocurrency or ecommerce applies to, you will need a CPA firm that understands your business needs. So give us a call or schedule a free 30 minutes consultation with our owner Matthew Shiebler, CPA. He's been practicing accounting for over 25 years now and is a business owner, just like you! If you're still not convinced yet to give us a call, feel free to look at our other blogs regarding the help we offer other businesses and practices.