Bitcoin for a US S corporation

Checked 9 November 2026. Tax rates and rules change. Your accountant should confirm how they apply to your company.

This page is about United States companies. For the UK, see UK limited companies or UK LLPs. Other US types: C corporations, S corporations, LLCs.

How the company is taxed

An S corporation is a corporation that has elected, on Form 2553, to be taxed under subchapter S. The IRS says it can have no more than 100 shareholders and only one class of stock, and the election must be signed by all shareholders. The company files Form 1120-S and gives each shareholder a Schedule K-1. Under section 1366, each shareholder reports their share of the company's income, gains, losses and deductions on their own return, and the character of each item is decided as if the shareholder had realised it directly. A long term gain on bitcoin held by the company is a long term gain for the shareholders.

Shareholders are taxed on their share whether or not the company pays out cash. A company that sells bitcoin at a gain and keeps the proceeds still leaves its shareholders with tax to pay, so the treasury policy should consider distributions to cover it.

Shareholder basis

Each shareholder has a basis in their stock, increased by their share of income and gains and reduced by losses and distributions. Section 1366(d) limits the losses a shareholder can deduct to their stock and debt basis. A large unrealised fall in the bitcoin price does not pass through at all, because tax follows disposals; a realised loss does, within the basis limit.

Whether a purchase is funded from retained earnings, a capital contribution or a shareholder loan can change that basis. Record the choice in the minutes and the books. See funding a company bitcoin purchase.

Built-in gains tax

Section 1374 imposes a corporate level tax, at the highest corporate rate, on built-in gains recognised during the five year recognition period after a C corporation becomes an S corporation. If a former C corporation held bitcoin that had risen in value at the date of conversion and sells it within the period, part of the gain can be taxed at the company level as well as passing through. The tax does not apply to a company that has always been an S corporation.

Passive investment income

An S corporation with accumulated earnings and profits from C corporation years faces a tax under section 1375 if its passive investment income is more than 25% of gross receipts, and under section 1362(d)(3) its election terminates after three consecutive years of that. The current definition in section 1362 lists royalties, rents, dividends, interest and annuities. Gains from selling bitcoin are not on that list, but interest from lending bitcoin would be. These rules only bite for former C corporations with retained earnings and profits.

Broker reporting and accounting

The 2026 Form 1099-DA instructions treat corporations as exempt recipients but say a broker must file for a sale of a covered security by an S corporation. Expect forms, and reconcile them with the company's own lot records. Accounting follows US GAAP for companies that prepare GAAP accounts, including ASU 2023-08 for in scope crypto assets; many small S corporations keep tax basis books, which follow disposals.

State treatment varies. California's Franchise Tax Board, for example, lists a 1.5% rate for S corporations (page last updated 24 September 2025).

Common questions

Does the S corporation pay tax on bitcoin gains?

Usually not; gains pass through to shareholders under section 1366. The exceptions are the built-in gains tax and the excess passive income tax, which apply mainly to former C corporations.

Are bitcoin gains passive investment income?

Not under the current list in section 1362, which covers royalties, rents, dividends, interest and annuities. Interest from lending bitcoin would count.

Will the company receive a Form 1099-DA?

Likely. The 2026 instructions require brokers to file for covered security sales by S corporations.

Sources

Primary sources only. Each link was checked on 9 November 2026. Rules change, so confirm the current version with your adviser.

1. IRSS corporations
2. IRSAbout Form 2553, Election by a Small Business Corporation
3. IRSAbout Form 1120-S, U.S. Income Tax Return for an S Corporation
4. Cornell LII (unofficial copy of the US Code)26 U.S.C. 1366: pass-thru of items to shareholders
5. Cornell LII (unofficial copy of the US Code)26 U.S.C. 1374: tax imposed on certain built-in gains
6. Cornell LII (unofficial copy of the US Code)26 U.S.C. 1375: tax imposed when passive investment income exceeds 25 percent of gross receipts
7. Cornell LII (unofficial copy of the US Code)26 U.S.C. 1362: election; revocation; termination, including passive investment income
8. IRSInstructions for Form 1099-DA (2026): covered securities, basis reporting and exempt recipients
9. California Franchise Tax BoardBusiness tax rates
10. FASBASU 2023-08, Intangibles: Goodwill and Other, Crypto Assets (Subtopic 350-60)