How the IRS sees Bitcoin
Since 2014, the IRS has treated Bitcoin as property — not currency. This is the single most important thing to understand. It means Bitcoin is taxed more like a stock or a piece of real estate than like the dollar in your pocket.
Whenever you sell, spend, trade, or otherwise dispose of Bitcoin, it's a taxable event. The IRS wants to know what you paid for it (your "cost basis") and what it was worth when you got rid of it. The difference is either a capital gain or a capital loss.
Whenever you earn Bitcoin — as payment for goods, services, freelance work, mining, etc. — it's treated as ordinary income at its fair market value the moment you receive it.
If you're a merchant
When a customer pays you in Bitcoin, the IRS sees that as ordinary business income. You owe income tax on the fair market value of the Bitcoin at the moment you received it — in U.S. dollars.
If you hold and it goes up: If you keep that Bitcoin and later sell or spend it when it's worth more, you also owe capital gains tax on the appreciation.
If you hold and it goes down: You may be able to claim a capital loss, which can offset other gains.
Self-employment tax: If you're a sole proprietor or freelancer, Bitcoin income reported on Schedule C is also subject to self-employment tax, just like income received in dollars.
If you're a customer
When you spend Bitcoin to buy something, the IRS treats it as a disposition of property. You're essentially selling your Bitcoin and using the proceeds to pay for the item. That triggers a capital gain or loss.
Holding period matters. If you held the Bitcoin for more than one year before spending it, the gain is taxed at the lower long-term capital gains rate (0%, 15%, or 20% depending on your income). Under a year is taxed at your ordinary income rate.
Small purchases add up. Yes, technically even buying a $5 coffee with Bitcoin is a taxable event. Most people handle this by keeping records and reporting at tax time.
If the price dropped: If Bitcoin is worth less when you spend it than when you bought it, you have a capital loss. This can offset gains elsewhere on your tax return.
What Plaza does & doesn't do
Plaza is a non-custodial Bitcoin commerce interface. Here's what that means practically:
- Plaza never holds your Bitcoin. Payments flow directly from the customer's wallet to the merchant's wallet via Lightning and NWC.
- Plaza is not a broker. Under current IRS regulations, broker reporting requirements (Form 1099-DA) apply to custodial entities. Plaza doesn't custody anything.
- Plaza does not report your transactions to the IRS. We don't issue 1099s and we don't file Form 8300. We don't have the data to do so — by design.
- Your tax obligations still exist. The fact that Plaza doesn't report for you doesn't mean the income or gains aren't taxable. You're responsible for your own record-keeping and reporting.
Plaza vs. custodial processors
| Plaza | Custodial Processor | |
|---|---|---|
| Holds your Bitcoin | Never | Yes |
| Issues 1099-DA to IRS | No | Yes, from 2026 |
| Reports cost basis | No | Yes, from 2027 |
| Can freeze your funds | No | Yes |
| Form 8300 for $10K+ | No | Paused |
| You control your keys | Always | No |
| Tax reporting responsibility | On you | Shared with broker |
Practical record-keeping
Since Plaza doesn't report on your behalf, good records are essential. Plaza's Blossom receipts are designed to make this practical.
Plaza Pro and Business tiers include transaction export tools — timestamped CSV/PDF logs with USD values and full line-item detail — designed to be compatible with tax software like Koinly, CoinTracker, and TaxBit.
Real-world scenarios
Maria runs a coffee shop and accepts Bitcoin via Plaza. A customer pays 25,000 sats for a $23 latte order.
Maria's tax event: She has $23 of ordinary business income, reported just like a cash or card sale.
The customer's tax event: If those sats originally cost them $15, they have an $8 capital gain.
Maria tracks the $23 income. The customer tracks the $8 gain.
Maria keeps the Bitcoin. Three months later she sells it when it's worth $30.
Additional tax event: $7 short-term capital gain ($30 - $23 basis when received).
Total tax exposure: $23 income + $7 gain = $30.
Jake bought Bitcoin at $100K/BTC. It dropped to $80K. He spends some to buy a $40 item.
Tax event: He disposed of Bitcoin at a loss. Those sats cost him $50 but were worth $40 at time of spending. He has a $10 capital loss.
Jake can use this $10 loss to offset other capital gains.
Alex moves Bitcoin from Strike to Phoenix. No purchase or sale happens.
No tax event. Transferring between your own wallets is not taxable. Cost basis carries over.
What's being debated right now
De minimis tax exemption: Currently, every Bitcoin purchase — even a $5 coffee — triggers a taxable event requiring gain/loss calculation. Senator Lummis has drafted legislation proposing a threshold. Major Bitcoin companies are now unified behind this push. If passed, this would be the single biggest unlock for Bitcoin as everyday money.
What it means for Plaza: Plaza already charges zero fees for merchants. If de minimis passes, customers also get zero tax friction on everyday purchases. That's the full unlock — zero fees for merchants, zero reporting burden for customers on small purchases.
DeFi broker rule — repealed. In April 2025, President Trump signed legislation repealing the IRS rule that would have required non-custodial platforms to report transactions. Under the Congressional Review Act, the IRS cannot issue a substantially similar rule. This is favorable for Plaza's non-custodial architecture.
Form 1099-DA: Starting in 2026, custodial exchanges must report both gross proceeds and cost basis to the IRS. This applies to Coinbase, Kraken, and similar platforms — not to non-custodial tools like Plaza.
$10K crypto reporting (Form 8300): The requirement for businesses to report cryptocurrency receipts over $10,000 remains paused pending final IRS regulations. When it takes effect, it will apply to the merchant receiving the payment — not to the payment tool they use.
Resources & next steps
- IRS Digital Assets page — irs.gov/filing/digital-assets — the official hub for crypto tax guidance and forms.
- IRS Notice 2014-21 — the foundational notice establishing Bitcoin as property for tax purposes.
- Form 8949 — where you report capital gains and losses from Bitcoin dispositions.
- Schedule C (Form 1040) — where merchants report Bitcoin income if self-employed.
- IRS Virtual Currency FAQ — irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions
Tax software that supports Bitcoin: Koinly, TaxBit, CoinTracker, and TokenTax can automate capital gains calculations. Plaza's transaction export features are designed to be compatible with these tools.