The IRS, 1099-DA, and what to tell your accountant

Before anything else

Two important caveats:

1. This lesson is operator-level orientation, not tax advice. Tax law varies by state, by business structure, and by the specifics of your situation. Every claim in this lesson should be confirmed with your CPA before you file. We're walking you through the conceptual framework, not the literal forms.

2. Tax treatment of Bitcoin in the US is unusually settled. Despite years of debate in crypto circles, the IRS has been clear since 2014 that Bitcoin is treated as property for federal tax purposes. That framework has held through Treasury guidance, IRS notices, and the introduction of the new 1099-DA form. There's no ambiguity at the federal level — just the question of whether you and your accountant know how to apply it.

That's what this lesson is for. By the end, you'll be able to walk into a meeting with your CPA and have a clean, accurate conversation about your Bitcoin-related tax obligations.

The three-sentence summary

If your CPA has never handled a Bitcoin-accepting merchant before, here's the three-sentence orientation that gets them to the right starting point:

"We accept Bitcoin as a payment method. The IRS treats Bitcoin as property, so when a customer pays us in Bitcoin, we recognize income at the fair market value at the moment of receipt — same as if they paid us in stock. If we hold any Bitcoin (instead of auto-converting to USD), each later sale or expenditure of that Bitcoin is a separate capital-gain or capital-loss event."

That's it. Once your CPA hears that, they have everything they need to start.

The two taxable events you need to track

Event 1: Receiving Bitcoin as payment.

This is ordinary business income, exactly like any other revenue.

• Amount: USD equivalent at the moment the payment lands (locked in by the platform).
• Reporting: Same as any other revenue — Schedule C for sole proprietors, Schedule K for partnerships, Form 1120 for C corps, etc.
• Note: It doesn't matter whether you immediately convert to USD or hold the Bitcoin. The income event happens when the payment lands.

Event 2: Selling, spending, or refunding held Bitcoin.

This is a capital gains/losses event, separate from the income event.

• Amount: Difference between the fair market value when received (your "cost basis") and the fair market value when sold/spent/refunded.
• Reporting: Form 8949 + Schedule D for individuals; equivalent forms for businesses.
• Short-term vs. long-term: If held less than 12 months, taxed at ordinary income rates; if held 12+ months, taxed at long-term capital gains rates.

If you auto-convert 100% to USD on receipt, Event 2 never happens for your business. The Bitcoin you "received" was immediately converted to dollars — you never held Bitcoin as an asset, so there's nothing to sell later.

If you hold any percentage of Bitcoin, Event 2 happens whenever you later sell or spend any of that held Bitcoin.

What VoltageAI provides for tax purposes

To make your CPA's job easy, VoltageAI's dashboard generates these reports:

1. Annual Bitcoin Income Report

A consolidated report showing every Bitcoin payment received during the tax year, with:

• Date of receipt
• USD value at receipt
• Customer transaction reference
• Whether auto-converted to USD or held as Bitcoin
• Cost basis (USD value at receipt) for any portion held

This report functions as your "Bitcoin-side of your income statement."

2. Annual Bitcoin Sales and Disposition Report (only if you've held Bitcoin)

If you held any Bitcoin and later sold, spent, or refunded it, this report tracks:

• Date of acquisition (when received)
• Date of disposition (when sold, spent, or refunded)
• Cost basis (USD value at acquisition)
• Proceeds (USD value at disposition)
• Short-term or long-term holding period
• Gain or loss

This report drives the capital gains side of your tax filing.

3. Form 1099-DA support (starting tax year 2026)

The IRS has introduced Form 1099-DA — Digital Asset Sales — which payment processors must file for high-volume customers. Your dashboard automatically tracks the activity that may trigger 1099-DA reporting, and we'll file the form on your behalf if you meet the threshold.

In practice, most merchants below ~$20,000/year in Bitcoin volume won't trigger 1099-DA filing. Higher-volume merchants will receive a copy of the filed 1099-DA each January, which your CPA cross-references against your records.

How auto-converting changes the picture

If you set your VoltageAI account to auto-convert 100% to USD (the default), your tax life is simpler:

• One income event per transaction, in USD, at the moment of sale.
• No Bitcoin to track on your balance sheet.
• No capital gains events.
• Your tax filing looks almost identical to a card-processing-only business — Bitcoin is just another payment method line item.

This is why most merchants run at 100% auto-conversion in their first year or two. It's the simplest tax setup and matches what most accountants are familiar with.

How holding Bitcoin changes the picture

If you hold any percentage of Bitcoin (5%, 10%, whatever), your tax life gets one degree more complex:

• Income event still happens at receipt (same as auto-converting).
• Plus: every later disposition (sale, spending on expenses, refunding to a customer) of the held Bitcoin is a separate capital-gains event.
• Your business balance sheet now includes "Cryptocurrency Holdings" as an asset line.
• Your tax filing now includes Form 8949 and Schedule D for the capital gains side.

None of this is hard for a competent accountant — it's the same paperwork they'd file for a small stock portfolio. But it's an additional step, and one to be deliberate about.

Refunds and tax treatment

When you refund a Bitcoin payment to a customer:

• On the income side: The refund reduces your revenue in the period the refund happens. If the refund happens in the same tax year as the original payment, it's a wash.
• On the Bitcoin side: If you held the Bitcoin between receiving and refunding it, the refund is a disposition event — meaning a capital gain or loss. If you auto-converted to USD on receipt, the refund just sends out USD-equivalent Bitcoin — no capital event.

Refunds across tax years require care. Talk to your CPA about timing if you're processing refunds late in December or early in January.

State and local tax considerations

The federal framework above applies in every US state. State-level treatment is layered on top:

• Most states follow federal treatment — Bitcoin is property, income recognition at receipt.
• A few states have specific cryptocurrency provisions — usually clarifying rather than diverging from federal treatment.
• Sales tax: Charged the same way it would be on any other payment method. Bitcoin doesn't change whether sales tax applies to a transaction.
• City and local business taxes: Vary widely. If you're in a city with unusual tax structures (SF gross receipts, NYC business taxes, etc.), confirm specific treatment with your CPA.

Working with your accountant — three questions to ask

1. "Are you comfortable with the property-treatment framework for Bitcoin?"

If they say yes and can speak about cost basis tracking, capital gains, and Form 8949 — you're in good shape. If hesitant, ask for a referral to a CPA who has Bitcoin-accepting clients.

2. "Have you handled Form 1099-DA filings, or 8949/Schedule D for digital asset dispositions?"

This filters for actual hands-on experience.

3. "What records do you need from VoltageAI to complete my return?"

This is the action question. Typically: annual income report, annual sales/disposition report (if applicable), and any 1099-DA copies you received.

What's next

That completes the Bitcoin Operations track. You now have everything you need to:

• Set up Bitcoin acceptance in one focused day (Lesson 6)
• Brief your staff in twenty minutes (Lesson 7)
• Handle refunds and disputes without the chargeback machinery (Lesson 8)
• Read your dashboard and know which numbers matter (Lesson 9)
• Walk into your CPA's office with the right framework (Lesson 10)

Next up: Lesson 11 — Sats-back loyalty: the modern alternative to points.