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.

as stated in a previous post my bank screwed up my wire xfer 6x the main bank did not like that and did an investigation....knowing this i wen t "legal" and paid taxes thus when they asked ....could show legal and their mess up (changed banks). I'm in USA if i could have I'd simply have held coin till say next year when imho some of these dumb IRS rules would be modified....but alas was not to be...but then again I don't have an itchy feeling on my back as an IRS target now.....so as a newb wire xfers are like an IRS wildlife 'tag' imho

As long as you don't think they'll be able to identify you on the blockchain sometime in the next 7 years, go for it.  But I have a feeling they might.

that is what I ment I'm depreciating assets from last year...but this years equip i should do your 179 option...again last year I think I had more equip then the 179 was worth doing....so she depreciated in stead..20% 5 year method....but this year with the coin i make the equip i have on order ..it looks likely to make sense this year...again she also wanted me to show "some profit" as a new business as a hedge down the line..must show profit for 5 yrs biz type of thing

not sure...again I'm trying to remember stuff from april 2013 when forms were flying...i may not have it exactly right but at least I'm getting enough info to ask the CPA stuff this year...but I seem to remember this coming up and she depreciated the stuff as computer equip (5 year plan) instead ...we can only go by the guidelines..i'd assume this year or next the computer designation will go away for bitcoin miners..and we did call the IRS hotline too...so...anyway...I shoulda paid 4K only paid 550 usd..and my taxes show my equip being depreciated on 5 yr plan...not sure what the IRS hotline said ...on the call...she was doing the talking and a lot of u-huh's going on.


again just trying to muddle thru

thanks for your help

Searing

You can't take a 179 deduction for assets you didn't purchase the same year.  You can't take a 179 deduction for assets that you are depreciating. 

well likely that is what my CPA was gonna use last year 2013..but probably I had more equip then I had income...so she
did straight 20% deduction on my equipment instead I think...to push the benifits of such into the next year...again
this is what I think my have no basis in reality...if what you say is true with deductions from last year 20% this year
and the 50% off eguip this  year I will likely use this...(or more on section 179 as you state) I will definitely be able to use such this year (knock wood) in that
I expect to make 75 to 100 coin.....er "the tax man cometh"

so it goes

Searing
 

Yeah none of that has anything to do with a Section 179 Deduction.

again from my previous post as I remember stuff..this seems to ring a bell...but I think it is 50% max this year....I thought also it was 50% last year (perhaps I did not need all my deductions in that manner...i did pay a bit to show profit most I got out of) ...anyway....this has NOT been passed yet a far as I can tell congress is holding up these tax befits for small business the republicans at the moment are using it as a lever in the senate..we will see

it is helpful but if I made 10k mining and had 10k of equipment....my amount being Taxed will be 5k which means my taxes at 50% would be 25% against that 5K  would be 1250 usd vs 2500 usd w/o the equip deduction..10k in equip is  a long way around the park to save 1250 usd!..this is OK..if you are planning on equip anyway....but again this years 'exceptions" on such are currently being held up in congress from what I understand

again this is my 'skewed' understanding of such...consult a CPA

anyway......main point is IRS says I am legit I pay IRS its 25% cut I can play depreciation equipment games up to a point...

still way behind on how all this hangs together that is what the CPA is for ..anyway in USA consult a CPA if you plan to be "legal" on your btc stuff (or are backed into such like me) heh

Searing

I believe he was just giving the absolute worst case scenario. The highest tax rate you could probably receive if you made THAT MUCH money.

Small businesses can elect to deduct 100% of the cost of an asset value as an expense instead of depreciating it.  It is called a "Section 179 Deduction".  
http://en.wikipedia.org/wiki/Section_179_depreciation_deduction

It is the single best tax deduction for small businesses and there is absolutely no reason for a miner to not use it unless it is not available.  The bad news is that for years through 2013 the max deduction was $500,000, but in 2014 it drops to $25,000.  Still if you purchased less than $500,000 in mining hardware in 2013 and/or less than $25,000 in mining hardware in 2014 there is no reason to not take the section 179 deduction.   Essentially you are getting the full depreciation deduction "up front" in the first year instead of over the life of the equipment.

Note this should not be considered tax advice and is only informational. Your tax situation may vary, always consult a tax professional.

WARNING: This is a long post and cumbersome and illustrative of my way of paying taxes in USA 2013  'mining bitcoin"
under guidelines of IRS 2013 of mining bitcoin. ...for illustrative purposes only on my situation... best I can remember it.
ANY info you find of note here contact your own tax professional CPA ..this was for .2013 and we (CPA & I)
are going by the '2013 IRS Guidelines" ...much fuzziness imho.
IF you don't like long posts or the way I write or are outside of the USA with our 'nutty' IRS
...feel free to skip this whole post!

By the by I went "legal" on my bitcoin mining due to bank errors on wire xfers they screwed up...too much
paper over 10k ..thought it was a mess ..thus why I went legal glad I did had to prove such to bank that
they made the errors and used my 2013 legit miner tax forms to prove I was legit ..so being paranoid was
good..or I'd be in a world of hurt with IRS ...so I can live with being 'legal' on my 2013 mining for sure!

32K I think it was of miner equipment (think that was the figure) 35 coin made....mining profit was pennies short of 16K usd.
w/o deductions I would have owed the IRS 4K in taxes (the price I thought I had to pay for the bank drama)

w/ deductions (assuming my miner amount above is correct can't remember) at 50% knocked off this 2013 year if I remember correctly
for 'stimulating economy on biz equipment..etc..

16K of deductions equip  vs 16K of coin income...0  bucks  in taxes owed
..had some other stuff home biz....1st time biz other breaks..
other deductions that quite frankly I'm clueless about..but anyway

Tax CPA lady said best to show a profit ..she tweaked some stuff
.so anyway I ended up owing the IRS 550.00 usd on my 35 coins for 2013.did not have to pay 3450.00 taxes I thought

This year my knc jupiter will End of life at 15 btc...I also have a BFL refund in the equipment above 8.5k that now that I REFUNDED (miracle) it will also count as income
so this year at $450 a coin and the BFL refund have already made mining/refund $15,250.00 mining income and that is BEFORE my Titan 300mh scrypt miner, alpha vyper
16mh (likely 16mh virtual compensation added) and another unit I plan to order spondoolies for 5K..so if I really pump out coin this year I may have wished for
more bitcoin equipment?...I could be in for quite the Tax hit if btc goes to 1000 a coin...but you play the hand you are dealt.

so as you can see the more coin I make the more 25% the IRS gets from the bigger pie....on the other hand being a legit biz and IRS considers this land/property
you can depreciate equipment...the CPA lady said you are a 'farmer' only way to make btc is mine..thus like a farmer you can depreciate equip to make the btc
IRS wants you/btc to be successful CPA lady said so they can get 25% mining tax for next 40 years etc

anyway that is my above imperfect remembrance how this works and this year using the "guidelines" she put the stuff under computer equip depreciation (ie it computes)
for 5 years...I did tell her that a "miner" of any sort scrypt/bitcoin
 it is only likely to be good for 1 year at most her reply was best we can do with 'guidelines' may change in the future just keep equip..can
only go by what the IRS put out as a guideline she says....computer equipment (5 yr depreciation)
so keep the equipment 5 years (ideally hooked up) even if you don't use it often....I eventually can write off 2013 equipment
unless they retroactively change 2013 it should depreciate...again under 'current' guidelines CPA lady said.

now also there MAY be to stimulate economy again 50% off new equip rather then the 20% normal depreciation normal depreciation you'd usually
have to take this year..plus 20% or so off last years equip etc
so anyway the game I'm trap'd in so far...and again best I can remember how it was explained to me..

well ..It works ...so far.....will try the game this year this way as well..then of course I may have fumbled how I explained this and or my CPA lady is nuts
either way...my amended taxes are in somewhat in the above manner for 2013 and likely will use the same method for 2014....should this more or less
stay in place for 2014 (as i expect it to) till after the Nov 2013 congressional elections in USA..i expect more specifics for bitcoin in 2015 tax year.

again this is a rough idea of why/how i went legal and approached this in the USA...the above is not exact ...illustration purposes at best
contact your own CPA but again was what my CPA got from the IRS guidelines and we called the IRS help line...and so went with it for 2013
and making biz considerations this year 2014 on the same

anyway I be a "farmer" i guess (hope next years crop is good frigging bitcoin tractors better pay for themselves!

Searing

I'm not a tax expert, but I'm pretty sure it works something like this:

If you buy mining equipment for 20k, then you can depreciate your mining equipment and deduct the depreciation from the mining income. Depreciation is over several years, so it won't be 20k. It will be more like 7k (assuming 3 years). If your income is 8k and the depreciation is 7k, then you will have a 1k gain and not a 12k loss.

If you buy cloud mining shares for 20k and you have 8k income, then your income is 8k, and you pay capital gains on the difference between the buy and sell amount in the year that you sell your shares.

Losses carry forward but if you have a 12K mining loss it is applied against your other income for that year first so it would only carry forward if you had less than $12K in income from other sources.

are losses carried year after year?
for example, if I put 20k or mining, this year get 8k and next year, other 8k, will I have in the next year to declare 8k profit or declare loss?

I know that, I say that from the angle that America (I apologise for saying this because it's kinda a "double edged sword") likes to play "World Police"
Being right next door to america, with our current Harper goverment, I'm sure America would try to push the laws as a "standard" that their allies must apply to try and prevent offshore mining.

Fwiw, I am personally biased Against the USA's Goverment

OP, you need a better accountant. Stat.

Good news bro!  IRS doesn't tax Canadians.



*and wars are so ...unrainbow.

I am pretty sure many miners are profitable but for those who produce a loss there is no income tax and the net loss will reduce the overall income reducing overall taxes.

OK... so none of the Bitcoin miners in the US will be paying any taxes to the IRS. I don't think that Bitcoin mining is profitable anywhere in the world. So the net income is in negative.

http://www.logicallyfallacious.com/index.php/logical-fallacies/97-faulty-comparison

https://en.wikipedia.org/wiki/Decline_of_the_Roman_Empire

........well good thing the IRS isn't trying to tax you

+1

+1

[insert IRS hate here]

The IRS can go fuck them selves, Absolutely anyone trying to "tax" bitcoin mining income can go fuck themselves.
It's intolerable and just plain screwed up.
Anyone trying to do such a thing is basically saying "lets send all bitcoin miners offshore to centralized could hashing facilities that can be easily shut down in comparison"

Fuck Right Off, All bitcoiners should stand up with the middle finger to the IRS about this.
I am Canadian... *crosses arms* I am willing to fight a war over this and give my life to defend the future from tyranny
No government should be allowed to "tax" an income source that they have Nothing to do with.

Of course since the IRS has no way to monitor the trading arm of BTC yet you could just try not reporting it lol

As a Canadian.. Ya the IRS can go F them selves.

You also need to keep in mind that keeping 60% of $20k Bitcoin would be $12k. Keeping 90% of $500 BTC is only $450 in profit. While the tax amount would go up with higher valued BTC, your earnings are significantly higher as well.

If you get to the 40% tax bracket and don't want to pay it, just toss all your BTC here. I'll gladly take the profit you're passing up!

I have never converted BTC to fiat personally. I am no accountant but I think it is only applicable when you actually convert it.

If they do destroy mining pools the hashrate and difficulty drop might make solo mining profitable again. As always innovators will innovate and bitcoin will evolve to compensate for this kind of stuff. 

Two things:

1 - 2014 tax brackets: http://www.tax-brackets.org/federaltaxtable
2 - Most of you are assuming the price has reached its long term equilibrium.  If the BTC/USD rate were to hit $16,000, that means a block is being taxed at 40%.  Granted, $16k/BTC might seem like a bit of a stretch, but don't forget that $1200/BTC would have been unfathomable to many just two years ago.

Or - fuck it!  There's no precedent because bitcoin mining doesn't really fall into any predefined category.  So what's to stop them from slapping a 60 or 70% tax on it?

So tell me...what happens when the IRS also decides that mining pools are effectively businesses and starts taxing their mining income directly - just like the triple incidence of taxation (corporate profits, employee salaries, and shareholder returns) we already see in the corporate world?

The direction I'm trying to point this conversation in doesn't have so much to do with what they want to classify mining revenues as, but rather that this move by the IRS is the exact type of federal power grab that bitcoin was created to weaken.  Similar to Obama's wonton expansion of the legislative branch's authority, the IRS is filling the uncertainty power vacuum with a self-proclaimed authority to excise taxes without establishing proper, well-researched precedents that drive economic prosperity.  Instead, they've made a snap decision to classify mining without acknowledging any of the disparities between it and traditional methods of generating income, and the current policy pays no heed to the fact that mining is an infrastructure-supporting mechanism in addition to an income activity.

My point...is that buying mining equipment (or bonds, or any asset whose output is tied to the difficulty) is functionally the equivalent of buying bitcoin futures, is it not?  And yes, the 40% rate will read as an exaggeration to most people, but keep in mind that the people building out the actual economic infrastructure that will boost the value of bitcoin in the long run will have to pay that 40% marginal rate (I pay in the ~35% bracket, and I have a day job, but thanks).

Mining is the engine that drives the network - I'm just saying that its stupid of the IRS to pull a move like this because it will drive mining operations overseas where both tax rates and electricity costs are lower.  Not the smartest move when real wealth is being created within your borders that could be used to fill the abyssal (sans natural gas) spending deficit that's bleeding away all of our future social security checks (read: gambling stipends).

I used those two for illustrative purposes, as everyone's income tax rate differs - but yes, you will be paying that 40% marginal rate if you're mining enough. 

My point isn't the exact rate, its how did a bunch of sloppy bureaucrats make the distinction between what should be taxed at the income rate vs. the short/long term capital gains rate?  If their only historical precedent is gold, then they deeply misunderstand the nature of today's bitcoin mining game and the required capital gains outlays therein.

The $8,000 isn't income.  You don't owe taxes on gross revenue, you owe taxes on income.  In the example the miner has no income, he has a loss and thus no taxes are owed, not only are no taxes owed if the miner has other non mining income his loss from mining would offset that income.  

Even if the miner did have $8,000 in income (income = revenue - expenses) it wouldn't be $3,200 in taxes.

Assumming he had no other income and was single it would be:

$8,000 - $6,100 (standard deduction) = $1,900 * 10% = $190 in taxes.

http://www.bankrate.com/finance/taxes/tax-brackets.aspx

How about people who don't understand the absolute basics of taxes, leave the taxes to their accountant or tax professional before they freak out?

40% of 8000, this is crazy, those thiefs want to rob us even more than those scammer in altcoin section, i'll just mine and dump to friend, go fuck yourself IRS, good luck traking me

No someone having $20,000 in cost and $8,000 in revenue has a NEGATIVE $12,000 in income and therefore would not only have no taxes would reduce the taxes on up to $12,000 worth of other income.  Where does your $3,200 come from?

Hey, guys. Amerifag reporting.

For most, "income" is the most flexible (and game-able) tax category. For example, as income, it counts toward the EITC, meaning that a low-income and even middle-income (and especially no-income) person mining likely is not only owing nothing in taxes, but can receive $thousands each year in tax "refunds." This may or may not be relatively harmful to larger players, but they can work that out with their tax attorneys.

That doesn't make any sense. For example, if some guy is spending $20,000 on mining rigs and electricity, and getting $8,000 worth of coins in return, should he pay $3,200 in taxes? No way. IRS has gone insane.

Yup very much so I would more agree with BTC being income instead of capital gains but OP needs to look up tax brakets either he's an idiot that regurgitates misinformation from the reaches of the web or a jaded rich bastard that's never paid under the 40% bracket either way I am not a fan

It makes sense to me that mining results in income rather than capital gains. Miners do work and get paid for that work.

Anyway, most miners will be able to declare a loss by depreciating their equipment, which will lower their taxes at the "40%" rate.

Yes Since income tax is based on your AMOUNT OF INCOME where the hell did you get the 40% tax rate from? That would only apply to people making $406k+ a year selling BTC Anyway and how about a link to where ever you are getting this info from instead of just spreading baseless fear and attempting to induce market instability

I`ll say IRS go fuk yourself.

Where did you get 40% and 20% from?

What is your marginal income tax rate?
What is your long term capital gain rate?
What is your short term capital gain rate?

Ergo, they can go fuck themselves.  True, the new regulations issued only apply if the BTC is sold into USD.  But as far as tracking the high frequency exchange and securities trading, especially with Dark Wallet and whatever else starts coming out now...all I have to say is "...good luck"

(hopefully Liam Neeson doesn't work for the IRS)