Topic: how to get taxed on bitcion for LT gain (Read 148 times)

#1 Assuming you're asking about US taxation, you're looking at the income from mining be taxed at your Ordinary tax rate (37% if Gross Income >$600,000 married or $500,000 single) at the time it is mined.

#2 If you hold a newly mined coin, then you have a new investment with a cost basis = #1 above.  If you sell, trade, or exchange that within 12 months of mining it, you will pay ST capital gains (which is your ordinary tax rate) on the amount it has appreciated since it was mined.  If you hold it 12 months, it qualifies for LT capital gains (which is either 0%, 15%, or 20% depending on which Ordinary tax bracket you're in).  This is similar to how stock awards are taxed (ordinary at vesting, capital gain at sale).

#3 Often with proactive planning, there may be benefits to incorporating a mining activity.  New 21% flat corporate rates would allow you to reinvest profits into the mining, but beware of the double taxation when you pay yourself.  If there's sufficient activity to qualify as an active trade or business, a pass-through entity like a LLC might qualify for the 20% pass-through deduction.  Mining can also be done in a self-directed retirement plan (IRA LLC or SD Solo 401k) to completely defer tax (or be tax free if Roth).

So I suggest working with a tax advisor who can help minimize your taxes from the beginning.  Definitely worth their weight in gold.

Usually you have to pay income tax in advance based on your estimated profit for the year. If you overpay, you'll get a refund. If you pay too little, you'll have to pay additional taxes and they will estimate a higher profit for the following year (unless you give them a good reason to assume otherwise, eg. when you expect to shut down your mining operation).

To clarify what profit means in this case: Say you receive two mining payouts during the year. 1.0 BTC while BTC is at EUR 15,000,- and 0.5 BTC while BTC is at EUR 10,000,-. Your taxable profits are now EUR 20,000,- regardless of BTC being at EUR 5,000,- or EUR 50,000,- at the end of the year and regardless of when and at which price you sell. So if at the end of the day you owe them, say EUR 5,000,- in taxes, that's all they want. They don't care whether you had to sell 0.1 BTC or 1.0 BTC. Note that no additional tax is applied to this sale -- or any future sale of your remaining BTC after that.

The bad news is, if BTC crashed to EUR 1,000,- and you didn't cash your taxes out before that, you'd have to sell all your BTC and would still owe them money.

The good news is, you get to deduct the cost of your mining equipment and electricity from your taxable profits.

i am in usa buddy land of watchdogs: cia, whitehouse, fbi and the likes.

This will depend upon the country im which you belong because if your country legalized the use of bitcoin it well be taxed as per regulation rules. If you change your bitcoin to fiat thru your local exchanges then tax is already expected then if you earned thru bitcoin of course it will be declared as income tax in which impossible to hide when we go through local exchanges.

The likely answer (depends on the country of you residency): Ordinary (i.e. wage/salary) tax on $15000, and then long term capital gain on $20000-15000, or capital loss on $15000-$10000. A capital loss can offset other gain elsewhere, and possibly some ordinary income.

I would really want to know about this, does that mean that if at the point of payout bitcoin is $15000 and Op have to hold till next year and price has increased to say $20000 when he is converting to fiat. Will he be subjected to tax at $15000 or $20000 or its the margin that would be paid as tax and if the price falls to say $10000, would he be entitled to a refund?

What's your tax residency? Some countries (eg. Germany) tax mining as regular income -- based on the exchange rate at the time of mining payout -- regardless of holding time.

i started mining now, I am planning to hold about 50% for long term and sell immediately the other half. I am expecting ST gain @ 39% for the ones that I sell immediately (assumption) and hoping that I can get taxed for LT gain for the ones I will hold over a year. Do you think that is possible?