Topic: [IRS] If Bitcoin is property, then the IRS may have a BIG problem! (Read 5485 times)

...which has come a long way from the times of the Constitution and the Coinage Act of 1792

The buyer being a fool thing is tough... I mean, I bought a cube high with USD right when they came out, mined BTC paid for the next 3 cubes and each was cheaper than the one before it. My first cube cost me $1,000 and just last week I sold it to someone for $275, mined with it for oh I don't know 3 months at the most(?). Not very long. Sold a blade for $100, and my average cost on 11 of those was over $230 each. The most I paid for one was $400, yes for one blade. So I sold a blade and a cube for $375, then turned around and bought some BTC and paid for most of a 180gh/s Antminer through a forum seller. I'm selling old gear at a loss to cover new gear, and the spread between selling USD and buying with BTC makes it possible, but also I'm taking on more risk. The thing is, everyone starts mining on the outside. They purchase with USD, maybe eventually they stumble across Jones Gear and think it's full of the best prices. The best deals involve the most risk. I find a group buy, I send some BTC to a complete stranger known only by a forum name, prepay a label, and then hope that my gear arrives. Luckily it always has, but if it doesn't there's no buyer protection on these transactions, and that level of risk is needed to purchase at prices better than the fools.

See, the fools are just new, and we all started out like that. Maybe they aren't quite fools but just not willing to trust a stranger for a purchase on the forums but still ballsy enough to speculate on BTC, but everyone starts somewhere and it's gotta be in their comfort zone, which means purchasing with dollars for many starting out. I just sold a BFL Jalepeno for $120, will that guy ever make money off it? If we keep trading sideways, never; if BTC goes to $5,000 he should see profits, but to achieve that he might need to keep it plugged in a few months and operate at a monthly loss hoping for BTC to trend up again. It's impossible to say anyone will "never make money off" something because that depends entirely on where BTC trades at on a future date unknown, and the further out you go the more unpredictable it is. People unplugged their miners when BTC was $30 because the electricity was costing more than the revenue. One BTC @30 per month revenue just wasn't enough to cover the extra $60 in electricity. Well, ultimately they missed a chance to have thousands in profits at the end of 2013 because they decided to unplug and stop speculating. Everyone with less skin in the game pays more, it's almost part of the learning curve.

And thanks for being a good sport about the oven stuff. I wasn't trying to pick on you it just was the easiest example to reference.


Edit: I also believe "useful life" of equipment is to be based on methodology that means "expected profitable life". If you have evidence or reason to believe a piece of equipment will operate at a monthly loss after the first year then I don't believe you should be putting it on a depreciation schedule. No evidence on planet Earth thus far indicates that ASIC mining equipment will be operating efficiently for mining after one year. The conservative approach in accounting assumes nothing about bullish speculation on pricing to concoct a bloated useful life on equipment to justify a depreciation schedule. Conservative assumptions in accounting are to be based on experience and historical performance, not speculation.

Sure, if you sell it to a fool that will never make money from it.   Documenting a sale or a donation to a electronics salvage operation would help as well.  But if it is never "disposed of",  then I would follow IRS guidelines not to raise red flags as a precursor to an audit.  That's just me, and I do not claim to be a CPA or a tax attorney.  I'm just a guy that fills out my own schedule C.

J_dubbs is 100% correct in everything he's saying.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/A-Brief-Overview-of-Depreciation

I am the oven guy, and I was speaking to you as if you were ignorant of the concept of depreciation, and I apologize for misunderstanding.   My position is that a standalone mining rig would be considered by the IRS to be in asset class 00.12.  While, logically, it shouldn't, as you have pointed out it may (although a high enough rise in $/btc  or an anomalous drop in the hashrate may invalidate that assumption) have a useful life less than a year.   I, not wanting to take an aggressive stance against IRS rulings, would put my mining rig in the asset class 00.12.   And, yes, I am a miner with a recently purchased rig. 

I'm not an accountant or CPA, in fact I haven't worked in the financial industry for over 5 years, but I've dealt with plenty of bull. Details are here, as specific as I'll ever get, on my background: https://bitcointalksearch.org/topic/m.5913035

I know what you mean, I think. I could be more polite, right? Well, the problem is it's very frustrating and damaging to see so much bad advice. I literally had someone compare this to owning a bakery and depreciating on an oven. Some guy who has never mined Bitcoin ever takes one accounting class and learns about depreciation and they think it applies to everything, very annoying to watch it spread and be recited as gospel. The very important rule with capitalizing equipment is that it MUST have a useful life beyond 1 year. Without getting into WHY depreciation is good for real businesses with that type of equipment we can just eliminate the static and just say "no". This ASIC gear, historically speaking, cannot be projected for a useful life beyond 1 year, and therefore it cannot be put on a depreciation schedule. Now, if someone wants to do that they can, but they will end up showing excessive profits that do not really exist. At this point someone would need to try to make a case FOR depreciating because the reasons why not to are so pronounced.

I'm meeting with a CPA tomorrow and should be able to get some feedback.

Yikes!  If this is in fact good advice to be listened to, it would be heeded more if it came in a package that is more pleasant to consume.

Quite honestly, even my accountant admits that any advice related to bitcoin is at best guess at best, because bitcoin is so new and the tax/revenue agencies and accounting profession at large are still busy wrapping their heads around it (while they wonder, individually, if they too should buy in ).  No one knows the "one true" way to do this, and especially a non-professional (I assume if you're an accountant or similar, you'd say so).

Google Rev Proc 2013 30

You can't incorporate retroactively however you can elect for S retroactively.

Do you have to actually incorporate in 2013 or can this be done retroactively?

i wonder what happens when you only mine coins that have no exchange at time of mining...  or what if the only exchange is some spreadsheet or rudimentary web site operated by some random person/group

are they expecting people to use these to estimate "profit"

seems a bit odd

If you incorporate you can depreciate 100% of the cost in the first year under section 179. The 2014 limit is 25,000... However that will likely be increased as it has for the last 3 years, to roughly 250k.

On the recent IRS ruling that BTC is property subject to capital gains on disposal of coins, and that miners must additionally pay income tax on the value of the BTC when mined, someone thinks being outside the USA will help but they are sorely mistaken...


As a former Treasury official was purported to have said, "we will burn the fingers of the goldbugs up to their armpits". And he also said, "its our dollar and your problem".





I hope you also understand that FATCHA will compel the nations of the banks in all nations to comply and remember the developing world is short the dollar due to massive bond issues in dollars to the ZIRP carry trade. The USA is still in control of the world as we go into this implosion 2016ish.

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See below on what the former IRS Commissioner told Aaron Russo when he was making the movie about there being no income tax law in the USA.

NO!

Bad advice. You cannot setup a depreciation schedule (I.e., capitalize equipment) because the useful life is less than 1 year. This may vary depending on your outlook, but it am firm that nothing in my rig is intended for use greater than 8 months and the salvage value is also very low due to increasing difficulty. Appreciation in BTC may change this outlook over time, but you are supposed to establish depreciation schedules according to future expectation from historical knowledge, and everything I've seen shows this equipment will operate at a LOSS anything further out than 8 months. This is not a dump truck or an oven, it is an ASIC miner, and anyone mining BTC right now is using one. You cannot capitalize (depreciate) equipment that in intended for short-term (1 year or less) use. For equipment that serves a life of less than 1 year you record a 1-time expense for the cost of the mining gear. Many will do this wrong and overpay, those who do it correctly will show a net loss and have a higher audit risk. Awesome.

People that don't know enough about mining are giving bad advice all over the place. Stop with the depreciation schedule stuff, it's not suitable for mining activity with ASIC chips.

How come I don't get to declare losses on my dollars due to inflation?

Very true.
Not only that,  but it an attack on avoiding the inflation tax, which by design Bitcoin was designed to avoid.
So the IRS is not only saying you are not allowed to have a competing currency against the dollar, but you will have subsidize the dollar debasement done by the FED.

Not allowing competing currencies is illegal, since  it is something the constitution allows.

Also not only it is an attack on Bitcoin, but also on all alternative private currencies.

The good news it is a sign that we are winning the war, we may have lost a battle, but not the war.

I am a believer in freedom, and in the spirit of Bitcoin, and this law is unenforceable, even for people willing to comply it will be a bookkeeping nightmare, so I believe the law will be enforce on large business dealing with Bitcoins, therefore severely hurting the Bitcoin economy.

You should ask yourself why are they afraid of letting Bitcoin and the dollar compete on a level playing field, with same laws applying to each currency instead of discriminating against Bitcoiners. Is it because the dollar will depreciate in value and Bitcoin will appreciate in value over the years.


  

The IRS has gotten it all wrong. All their statement will do is push onshore people to offshore services and companies where they cannot be taxed. I live and work in an offshore country where there are no capital gains taxes and cryptos aren't taxed in any shape or form. I'm already seeing a rise in what can best be described as "offshore crypto farms" where instead of you mining and manufacturing your own cryptos, you simply rent mining capacity or buy them cheaply. Either method means that you haven't technically manufactured them yourselves, rather you're buying a pre-manufactured product, which is tax exempt on purchase. Added to this, if the contract is written well, then the cryptos could be held in offshore "trust" wallets and only withdrawn as and when needed, thus obviating any reporting of them. You've simply paid for a service/product combination and the very existence of the mined cryptos isn't a taxable event. You could almost create a futures and options market that way, but that's another story...

Since the USA has introduced FATCA that is seeing US citizens and residents caught in a wider reporting/taxation net, the simple separation of an asset you own and enjoy overseas versus a product and service that you've bought and paid for could see cryptos becoming the "flee" asset of choice.

The upside of the statement is that the USA government has effectively rubber-stamped cryptos as viable and recognisable assets, hence they have a real value. Nothing like stimulating the very economy you're opposed to!

What kind of depreciation schedule would fly for an ASIC miner?

The standard 5 year for computer equipment is absolutely insane. Most of these units become useless as bricks within a year even if that.

I found something: https://www.youtube.com/watch?v=fvqkQvOWgeo

And as I understand it, mortgage is not a deductible expense anyway.  It's not even an expense related to business in the least - it's you paying later for a house you already bought a long time ago.  

Tax court is different from criminal court.  Essentially, it is a civil action (like being sued) and innocent until proven guilty doesn't apply.  It becomes criminal when you don't follow the tax court's order, and all they have to do is prove you didn't comply with the order.