How To Implement Bitcoin At Your Business

Dear Business Owners

Don’t you love giving away 3% or more of every sale to Visa and Mastercard? And isn’t it even better when people whip out their Amex? Who doesn’t like those fees? Oh, that’s right. Business owners don’t.

Would you offer your customers a payment method which eliminates those transaction fees? If so, keep reading.

Hopefully by now you’ve heard of Bitcoin, if not this article isn’t for you. But if you have, let’s walk through using Bitcoin’s Layer 2 payment solution known as the Lightning Network for your business. The Lightning Network will work for you regardless of whether you sell donuts or fix mowers or cut hair. If you can create an invoice, your customer can pay it with their cell phone.

Why Accept Bitcoin?

Your first question is probably, “Why should I add Bitcoin as a payment method?”

Assuming you’ve been accepting credit cards for a while, you’re well aware of the drawbacks to credit cards:

Those rewards cards that customers love so much are paid for by the 3+% fee that the processor deducts from every one of your sales.
Then there is the per transaction fee, effectively deciding the minimum amount you can charge. If your base fee is $0.45, don’t you cringe when your customer wants to spend just $1?
Depending upon your sales volume, your credit card processor probably charges a monthly fee as well.
And who can forget chargebacks? If you’ve been in business long enough, surely you’ve felt the sting of a customer disputing a charge and losing the appeal with your credit card processor.

Bitcoin reduces or eliminates each of these pains:

The Bitcoin Lightning Network has significantly lower fees. You can expect to pay around 0.2% or less. That’s more than ten times lower fees. What could you do with 2% to 3% more income?
And while per-transaction fees are common, they’re usually less than one penny, and it is included in the estimated fee above.
Regardless of your sales volume, there are no monthly fees.
Additionally, Bitcoin transactions are final. There are no chargebacks ever.

Converting Bitcoin Into Dollars

Your next question might be: “How am I going to get the money into my bank account so that I can pay bills?”

While some of you might want to keep some or all of the bitcoin collected as bitcoin, most businesses spend a large percentage of their gross income on bills which can only be paid with dollars, so converting between bitcoin and dollars is the most important issue.

The flow will go like this:

Customer asks for an item.
On a tablet, you create a Lightning invoice.
Customer scans a QR code from your tablet.
You receive bitcoin.
Later, you transfer that bitcoin to an exchange to convert into dollars.
You transfer from the exchange to your bank account.

There are several exchanges that support Lightning. What follows is a walk-through using either Strike or River Financial. You’ll only need to work with one of these two companies, but hopefully seeing two options will give you the sense for what is involved.

Strike is included because what they are trying to achieve — hyperbitcoinization — both in El Salvador and world wide, is worth supporting with your business.

River Financial is included because they support Lightning Network and would be simple for you to integrate into your business.

Additionally, this guide is going to describe working with something called an Umbrel. At this point you only need to know that it is an inexpensive computer which you’ll want to purchase to be the center of your new payment system. Umbrel will be described more fully in the section “Set up a node.”

Using Strike As Your Exchange

Step 1: Create an account on Strike

Creating an account starts out lightweight. You only need to give them an email address and a cell phone number, but to transfer higher dollar amounts you’re going to need to prove your identity with them by sending pictures of your government identification.

Once you’re all verified you should be able to connect your bank account. On the “Profile” tab, there is a “Payments Method” button that you use to connect Strike to your bank account.

Step 2: Request payment on Strike

You’ll need to create a Lightning invoice in the Strike mobile app.

From the “Home” tab, select Request.
Select the Bitcoin logo in the top right corner.
Enter a note for the transfer. You might use today’s date or anything unique to help your record keeping.
Enter the amount you want to move in dollars. Strike will convert this into bitcoin automatically.
On the following “Request” page, select the QR code icon in the top right.
Tap the “Share” button at the bottom to reveal the QR code.
Scan the QR code to get the invoice as text or, if you don’t have a QR code scanner, use the “Share” button to get access to the text version of the invoice.

Step 3: Send payment on Umbrel

On your Umbrel node, go to the “Lightning” tab.
Click “Send.”
Paste in the Lightning invoice.
Press “Send” again.
The Lightning Network will route the bitcoin from your node to Strike, and they will automatically convert it into dollars.
You can transfer to your bank account through ACH right away.

Using River Financial As Your Exchange

Step 1: Create an account on River Financial

On their website they have a “Sign Up” button. You’re essentially creating another bank account, so be prepared with your address and other identifying information.

Step 2: Transfer bitcoin to River

Select the “Transfer” tab on their website.
Select “Transfer Bitcoin” and click “Next.”
Select “Receive to River Account” and click “Next.”
The next screen is for people with multiple accounts. Select your account and click “Next.”
Select “Lightning Transfer” and click “Next.”
Enter the amount of bitcoin you want to transfer and click “Next.”
Copy the long string of text (start with “ln”).

Step 3: Send payment on Umbrel

On your Umbrel node, go to the “Lightning” tab.
Click “Send.”
Paste in the Lightning invoice.
Press “Send” again.
The Lightning Network will route the bitcoin from your node to River Financial.

Step 4: Converting bitcoin to dollars on River

Select the “Buy/Sell” button on the website.
Select the “Sell” tab.
Toggle what you’re selling to bitcoin (from dollars).
Enter the amount of bitcoin you transferred.
Select “Preview Order.”
Click “Sell.”
Once sold, you can transfer to your bank account through ACH.

What About Taxes?

Everyone’s favorite, right? You must love paying the correct amount of income tax, if only because it keeps the government off of your back.

You’re going to be reporting sales in dollars both for income tax and sales tax, however, you’ll be receiving funds in bitcoin. You’ll have to keep records of the sales as well as the conversions from bitcoin to dollars.

Keeping Sales Records

You’re already keeping records of all of your sales, maybe with a point-of-sale (POS) system. The easiest solution will be to ring the customer up on your POS and close the transaction as settled with cash. Then collect the bitcoin as described below. This will keep your sales numbers all in one place for tax purposes, but your bank balance will be split between cash register receipts and your bitcoin balance on your Umbrel.

Capital Gains Tax

While it would be great if it weren’t true, you’ll be creating a taxable event each time you convert bitcoin into dollars.

When you collect the bitcoin, you record the sale as having been in dollars. This is essentially an instant purchase of bitcoin with the dollars from that sale. So, naturally, your cost basis for that bitcoin is the amount of that sale.

You could report each and every Lightning Network sale independently, but a far simpler approach (which you can defend in any audit) will be the use of your average cost basis.

Whenever you convert from bitcoin to dollars, you’ll record:

The date of the conversion.
The average amount you paid for the bitcoin. Calculating this is described below.
The average amount you received for selling the bitcoin, which you’ll get from your exchange when you sell, as described above.

This will be all the information you need for you or your bookkeeper to fill out your taxes.

These will be short-term capital gains, which are currently taxed at your income level, but you’re not paying tax on the whole amount. You already recorded much of the value in your cash sales receipts. You’ll only be paying tax on any gains that might have happened after you received the bitcoin but before you converted it to dollars.

Everyone loves examples, right?

You want to sell ice cream for $5, but your customer wants to pay in bitcoin.
You follow the steps in this article and now you have bitcoin and your customer has ice cream.
If at the moment of the sale bitcoin was trading for $10,000 each, you would receive 0.0005 bitcoin.
At some point later, you send that bitcoin to Strike but because bitcoin’s price changed, you wind up with $7.
The first $5 you reported as regular income, just like the customer had paid you in cash.
The extra $2 you’ll have to report as short-term capital gains. Yes, you’ll have to give up around 30% to Uncle Sam, but you have an extra $1.70 that you wouldn’t have had if you’d sold the ice cream for cash.

Capital Losses

You want to know “What if the value of Bitcoin goes down before you sell?” Great question.

If you have a mix of gains and losses, you’ll add them together at the end of the tax year and pay taxes on the total.

“What if I lose money on every transaction?” you ask.

If the total of all of your transactions result in a negative number, the first $3,000 of these losses can be written off against your sales income. Any additional losses can be rolled into the future to reduce future gains.

Read More:How To Implement Bitcoin At Your Business

2021-10-04 01:00:00

How To Implement Bitcoin At Your Business

Dear Business Owners

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