Topic: IRS says mining is "income" (40% tax) instead of cap. gains (20% tax) (Read 4235 times)

my take is it is 25% in my income bracket..ie mining revenue is "income" so if I make 16K in mining bitcoin...and add it to 34K that is 50K ...less equipment deductions
i'm taxed at 25% less deductions

so yeah the 1st post is wrong imho

Searing

the thread should be deleted and the op be posted as a troll and or banned.

I can't begin to explain  how fucked up the op's first post is.

  As a son of a retired IRS employee  as the husband of a retired IRS emplyee and as a former IRS employee myself I know a little bit more then most on this subject.

  The op is close to the category of  ($%!#$@%)

  I am so tired of reading about anti IRS propaganda  on this website.  Or as you say statements of total and complete  lack of knowledge on the subject.

WARNING LONG POST SKIP BELOW IF YOU DON'T NEED/WANT/RELATE TO THE ISSUE I HAVE BELOW (skip by all means)

Again this is a LONG POSTING on IRS advice and my 'unique' USA reporting mining profits situation..if you are
not caught in my trap feel free to skip..this post is my situation and roadblocks games I'm playing to slide by
without giving it all to the IRS (likely a futile quest..but hey)

Actually as a "small business now" and home office and some other deductions for such with the equipment I've gotten
last  year i 'shoulda' paid 4k in taxes I paid 550 usd in 2013.  (to show a profit..the CPA says IRS likes that)...

this year 2014 it will be the same kinda deal with $3.511k of deductions from last year..the home office biz deductions (whatever they are)
and another equip deduction (likely 50% again 1st year you got equip) of likely 4K

so again I'll probably be OK and pay minimal taxes and hopefully at the 'worst' my equip will make sense vs btc to equip a wash...at worst with BTC going up I'll at least ROI in USD terms

so again probably will pay minimal taxes...and again i expect maybe this to go away by congress in 2015 (due to dumbness)

yeah..you guessed it.....here it comes

being a 'legit' biz I have to show a profit..to use these equip deductions/home biz etc...the catch is...with "mining' under the
current rules I can ALWAYS show a profit...even if coin was 50 usd under current rules the IRS would get 25% of that 50 bucks
and it would be a profit....but the profit would be so small as to make one wonder 'did you show a profit'' as the IRS likes to look
at that you are legit biz and/or does it make any sense with say next year me having now 5K of equip deductions (can take up
to 5 yrs on equip) that I can apply forward?

I DOUBT I could show enough profit in 'trading' bitcoin with a 20% capital gains tax on profits...the fact unless you want it at 46%
capital gains tax if you sell it before 1  year on top of the 25% for bitcoin mining...well that makes no sense ..you'd have to sell
coin older then 1 year to show profit ..so kinda defeats the purpose...and hey trading you get 4 coin a year you'd probably do
ok..but hardly helps my prev continuing equipment deductions....befuddled I am....

ie so..........the catch is ...probably need to buy equip next year (at least modestly) to show that my 'mining biz" can again
make a profit along the lines the IRS expects..use some/all of equip deductions etc...ie a going concern don't ya know

so HOW does one get off this merry go round? To show a profit to IRS I have to be a 'farmer' so to speak to due to biz
status and prev equip deductions that may look sensible to continue....if i DON'T want to continue..how do I wind this all up
in such a manner that I get 3-5yrs of deductions out of all this to at 'worst' a break even point? yeah....looks like i need
some modest equip purchases at least for next 3 years damn it (CPA says show a profit and at least 5 years to look like
legit biz)

so yeah ...due to me 'having' to report (see prev posts on circumstances..ie good thing IRS was a calling maybe) ...I have
managed to do better then buying coin last year 2013...and maybe break even in a btc buy vs equip buy kinda thing this
year....but looking at 2015 on 'mining?' I'm thinking I may have a pretty good tax burden unless I can find some equip that
at least makes sense to ROI in regards to btc to equip and $$$ to ROI at worst

any advice helpful...I've said this before if you are NOT mining and have not gotten caught in my IRS issues from previous
posts..the smart thing is just don't spend any btc or trade on exchanges (they can keep track of that) ...and just HOLD
till 2015...then when as i hope rules change to something more sensible (likely) you can just go 'gasp' I had a great year
and report at that point in 2015 (if it makes some kinda sense...like only $$$ paid are if you sell coin etc) anyway report it
then as a 'good' year (or not)..don't be caught in the fly paper like me!

anyway ....so far so good ...but feel like quite the hamster on the equipment treadmill at current time

last point w/o equip this  year tax burden was 4K with equip this  year and 12 more coin made tax burden is 5K (assuming
deprecation this year) so again made sense last year 2013 and this year 2014...completely befuddled
on if i can stay on the hamster wheel for 2015? Unless some of you boys are making 'big bucks" trading bitcoin??? I'm
frigging stuck on an equipment hamster wheel! (well maybe I can wind it down somewhat in next 3 years???)

obviously befuddled but so far treading water...

Searing

"made an exception for mining"
This is why the entire tax system (for most places in the world) need their tax code Thrown Out and rewritten, not edited.
Exceptions, for pretty much anything with enough "pull"... What's the point of a global code when you bend the rules where it matters most?

*feels really bad* I'm glad the IRS doesn't tax me, I dearly hope that those afflicted can undo this taxation

Mining is subject to the division of labor and market forces, miners are performing beautifully, regardless of half truths about "fair distribution" of mining work. Should we socialize mining? Should we involve government to price fix and manipulate, to award unfair advantage to an economic actor who can not find it naturally?

Bad Actors are found everywhere in society and we should point out examples, such as Roger Ver, so that we will learn not to cry out to government for solutions. Never Call The Cops!! They protect the state, not you.

made an exception for mining ..the IRS does not like the idea that you can add electricity with a bitcoin
miner and thus with a quick xfer make $$$ in their view out of thin air..they want it added to your income

so each time you send bitcoin to your address you are to keep track and at that day whatever the bitcoin
price is you add it to your income for the year for tax purposes

yeah it is dumb and yeah who would do that (unless in my situation)

and it will likely go away by congress in 2015

but yeah....20% capital gains if you sell a coin mined or not after 1 year and 1 day (property land stipulation it think this is?)

if you mine it 25% off what the bitcoin is worth (irs/soc sec etc) and you also must keep the coin for 1 yr and 1 day
and pay 20% on capital gains if it applies (if you are legal you could declare a capital loss too)

if you sell a coin bought or mined within a year it is 46% capital gains ...you add that and the 25% off
the top for mining the IRS asks for ..who would do this ..(unless of course caught like me by IRS/bank cabal)

again from what I gather congress in USA is kinda ticked at IRS and likely will change this imho because it is
dumb ..keep track of every bitcoin transaction ..ie you mined bitcoin in 2009 for 2c and you buy a 600 buck
tv this year with that bitcoin and the irs is assuming you will pay 599.98 in capital gains ie dumb

oh and the guidelines say you have to report to the IRS all your bitcoins from 2009 to present

and they gave the us citizens 20 days to do so before taxes were filed april 2014 when guidlelines came out

it is a giant IRS 'fishing expedition" in my view to track down criminal use of bitcoin ..no way will anyone
moving bit bitcion money do this .thus the IRS has a 'hook' on their funds/transactions again imho

anyway it will be changed imho but with elections this year (Nov 2014) it probably won't
get fixed back to something more sensible till 2015 back to the old way
 ..imho they don't care where you got the coin you sell it 20% capital
gains...you buy equip your risk no depreciation..but till then my situation I'm stuck by
these rules...

everyone else i guess just sit on your coin and wait it out till 2015 i USA I guess
they change the rules and you have to report bitcoin ..well golly 2015 was a
very good year for me (bats eyelashes)..or not

but if you did a lot of wire xfers for bitcoin equip or do a lot of  btc exchange stuff the IRS
could look you up doubtful ...but could...paper trail at the bank made me go legit
which otherwise I'd be having an IRS audit as we speak due to bank reporting rules
and mess up ..my legit tax forms 2013 got me out of such (again my unique situation
on why i reported taxes 2013 under the above dumb regulations)

anyway these are my views/suppositions/etc from my situation talk to your
own tax professionals or not...ie CPA tax folks

but essentially the IRS is treating bitcoin as property/land thus the 1yr 1 day stuff
to avoid speculation as they do with land ..and property aspect is like a farmer
you can depreciate a tractor you can depreciate a miner...that does offer me
some relief from the above in that i can run that out 5 years..but again i'm stuck

anyway my warped viewpoint of what is going on (gets me thru the day)

Searing

*takes a step back* Wait.... The IRS can tax your investment's income?
Or do they just declair that bitcoin mining isn't an investment...

Yeah it's income... when converted to Fiat, but I thought the US declaied that bitcoin IS NOT MONEY and it's a commodity?
IRS taxes income of commodities?!

I... I am uhhh, Really lost now.

yep it is income...i may have used wrong terms....25% fed taxes and soc security included in that but that is what they
tax your income at unless you make big bucks which not sure where it jumps to then....so if i make 25k in mining
and my income is 35K i have a gross income (before deductions) of 60k ...thus the equip deductions such as they are

but anyway look up irs guidelines virtual currencies 2013....it is laid out there how they (now) want to play it

again this is regurgitated thru me from my CPA ask someone who knows about this...I just post my own experiences
as a starting point if you are in a similar situation for whatever reason and feel the need to tell IRS etc

so it goes

Searing

Why should it be treated differently to any other income?
You supply hashes to a mining pool, the pool pays you for those hashes, whether your hash solves a block or not.
You are being paid an amount proportional to the work you have done.
Sounds like income to me.

they won't unless they can check your bank records (me ) see it is a bitcoin miner
ordered via wire xfer with a web link.. then i'm screwed

or

if you sell your $$$ on an exchange these days they have all your info....thus big $$ amounts in/out just
like a bank pop's up red flag

if you stay off major exchanges...buy your equip personally with btc

you are just fine

again not defending this just saying in my situation last year this year I'm kinda stuck ..i assume
after Nov 2014 elections next year congress will act..probably in the way they said in the hearings last
summer it is a currency...ie owe 20% on profit if you sell it..equip is your own risk..no depreciation.

likely get rid of this 'property' definition required to track each bitcoin transaction mined
on the irs guidelines of 2013..

likely will go reasonable in 2015 if congress has a say...they seem knida miffed at IRS right now

again this i my situation...but 2 things

1) you get an audit by the IRS and they start asking people 'under oath" on stuff you likely
are gonna get your bitcoin stuff found...a 300 buck utility bill would probably be their first
clue...

2) don't p/o the wife and get divorced you get reamed by the IRS and she then has proof/keeps
1/2 of your bitcoin in the divorce and/or you go to jail....on tax fraud too boot

me if i did not have the paper trail..i would have just sat on it..I'd never spent any so far
was a newb in 2013 at worst I would have 'claimed' massive success in 2015 on my taxes
should it look prudent to do so..but again my guess is by 2015 it will just be tax on the coin

but who knows...in the USA a case could be made that the IRS is always gonna tax you on
what you mine out of thin air for a coin (or how the IRS sees it) you could make a case
that is the IRS really gonna let some big mining farm make coin out of thin air and not
tax them? (or you)

whatever...I was snag'd by my banks paper trail...make for the hills...forget about me
I be *shudder* legit now ..(dang it)..I feel like a tag'd moose with a radio collar ...all
the other moose are 'snickering'

Searing

Seriously, how are they going to know if you hold bitcoin or doing mining in your basement?

NOTE: LONG POST ON IRS IN USA...if you don't like don't read this!

in my case if the bank messes up your wire xfers and shows 10 total and you only set 4 all for over 10K and then 6 of them
were there mess ups by the bank which they did not catch..so they got flagged as well
and of those 3 refunded from KNC (internatioal orders) which also freaked out the bot at the bank
keeping track of such stuff.....(kept a Titan from KNC) and on every wire xfer over 10k you sign a bunch of
forms you are 'not' trying to cheat the IRS ..well..any money orders in USA over 10k the results are sent to the feds
to check (or not) or in my case with the bank mess up above ..figured they'd check (they did or bank was gonna
report me) I decided that I had too much "paper' and went legit (just in case before this all came out)
 which IN MY CASE was my only real option or I'd
be in a world of hurt with the IRS...did find out however I could 'deduct' equip so paid only 550usd out of 4k owed..
so working so far...but again if you are a newb doing wire xfers over  10K? hell I think it may have changed to 5K this year?
esp international ones...the bank at least looks at everyone of them..if they have no idea and their mess ups
are counted and refunds counted..I lit the bank computer up like a xmas tree. Being paranoid paid off in my case!

yeah you do social security etc on the taxes thus the 25% of gross income.....don't forget you may have state
tax on top of that...my cpa set me up as a home biz also got some credit for being a new biz etc...

as for what the IRS can find out about your blockchain check out the BFL threads..they are gonna go after those
guys big time IMHO

again this is what I think I know what I really know is i don't know...talk to your CPA about this stuff

only good thing about all this is after 1 yr and 1 day I only pay 20% on capital gains if i sell my coins to the IRS...
that WILL imho be checked with all them nice exchanges that have your info...so even on coins you buy
I'd suggest you keep that in mind..if you mined like 50 coin and sold them on an exchange that now reguire
bank type info that could also red flag you imho. Again with any coins
and/or being legit can take them at a 'loss' if i mined and sold for less to knock down taxes next year...and the
depreciation of equipment..also no fear of the IRS when btc hits 10k a btc ..i be legit (in spite of myself)

anyway ask your CPA if in USA ...likely rules will change in 2015 back to equip risk is your own....and only
thing will be 20% tax on capital gains when you sell for a profit....like I was told by my CPA before
the "irs guidelines of 2013" and had to do a 'revision of my taxes" 20 days before the IRS deadline for
filing april 15th.....due to my above bank difficulties....weird times in the usa.

The biggest threat I see is with all the info you give the exchanges now to buy sell trade etc
at least USA ....well....they can find you that way...just like my bank...a little bot goes off
and then they ask why (shudder)

anyway how i got backed into this otherwise I'd have sat on my coin till maybe these rules get better
in 2015 when congress gets involved.

Searing

The Gov's representation on Bitcoin tax, What right do they have to Tax bitcoin income?
"Your using our internet that you paid for"?
"Your using our power we sold to you to earn income, to earn income"?
What's their reasoning?

Don't think they can enforce the rules, since you can have the mining operation elsewhere.

You have representation, what on earth are you talking about?

Just to make sure of a couple of things

-that 40% on income is after you remove the price of hardware and electricity right?
-when you pay your tax you also contribute to your social security and retirement plan right? I'm not to familiar with the american system, but here in europe when you work and you have your gross salary and net salary, and the different is to pay off for all those + tax (well at least in some countries)?
-I'm not promoting tax evasion here, but how can IRS know how much you bitcoin you've mined 

I think US citizens should just say NO!
"No taxation without representation!"
They taxed the bank that held your money
Taxed the transfer
Taxed the purchase
Taxed the shipping
Taxed the product
Taxed your internet
Taxed your income
Taxed your power
And now they want to Tax your investment?
....
When will people say "NO!", Seriously, people are being Taxed 2-3x more than they should be

IRS should spend their time improving their system and stop tax rebate fraud and identity theft.

in USA you pay on mining profits...and IRS expects you to say what you make overseas..but yeah...you'd likely get away with it overseas

in my case with all the big dollar paper over 10k money order attempts my bank made (6) and failed plus the other 4 that went rhru
and 3 refunded back...well ...I looked at that at tax time and marched in and paid taxes for 2013..glad i did or i'd be IRS all in my face now
the bank started to investigate me and was gonna report..needed the tax forms and proved it was their mistake ..without taxes paid
this year...I"d be dead IRS road kill right now (shudder)

but my circumstances are (hopefully) unique....

but yeah in USA under IRS guidelines posted 20 days before taxes due.april 15th...you are required to pay on mining profits you have made on
bitcoin and give the IRS 25% on such  back to 2009 when bitcoin was invented (heh doubt many people did that)..on the other hand I am allowed to
deprecate equip 2013 1st year 1/2 or some such usually 20% a year...so there is that..

...the IRS now has free reign to ask you about your bitcoin $$$ and if you did not pay taxes can beat this
dead horse 7 years into the future 2020 from the 2013 ruling

The IRS has stated they did this so they can 'find' large criminal enterprises that "would not show taxes back to 2009" I think they are
over reaching myelf and this will only work IF they found bitcoin of a large criminal group...as to small fry like us..unenforceable imho

me I started mining in 2013..had the above problems which was correct choice in going  legit (despite my tendency to hide btc)

so if nothing else if BTC in 7 years is 4K a btc and I want to buy a houseboat...IRS will have nothing on me

but yeah....my case is unique w/o a "paper trail' I see this for the most part as unenforceable (unless the wife divorces you
the IRS gets lots of tips from ex spouses of so I was told)


anyway my situation could be worse could be in China I guess?

(always one guy left behind in the crowd to take the fall) sigh

Searing

Don't think they can enforce the rules abroad.

The way I see it. People are paying miners with bitcoin abroad and gambling on seals with club.

I do not think miners pay tax on their mining profit.