Recently there’s been some back-and-forth between Mayor Francis Suarez of Miami and mayor-elect Eric Adams of New York. Each wants his city to be a hub for cryptocurrency activity. So, when Suarez tweeted that he would take his next paycheck in bitcoin, Adams responded he would take his first three paychecks in bitcoin. I guess you’d call that an act of twoupmanship.
It turns out the Big Apple doesn’t have the mechanism in place for such payments, so an Adams spokesperson says hizzoner will instead receive cash and use it to buy bitcoin. Before we learned this, some were speculating about how Adams would be taxed on the receipt of bitcoin as salary, and on disposition of the bitcoin. What would be his basis for bitcoin received as salary? Would he end up being taxed double when he sold the crypto?
Actually, these questions are easy to answer. Back in 2014, the IRS said they would treat bitcoin and similar cryptocurrencies as property. When you receive property as compensation for services, you report compensation income equal to the value of the property when you received it, and the property takes a basis equal to the amount of income you reported. In essence, you have the same tax treatment as if you were compensated in cash and immediately used that cash to buy whatever property you received. You won’t be taxes double. A later sale produces taxable gain only to the extent the value increased while you were the owner.
Normally we don’t see people compensated in property other than stock of the employer, but with certain exceptions these rules can apply to anything that’s treated as property for tax purposes.