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Topic: Possibly dangerous tax situation when mining in US - page 2. (Read 2433 times)

full member
Activity: 285
Merit: 100
If tomorrow it is declared illegal, then you stop. Up until that point you were doing nothing illegal.
Really? From FBI quote.
Quote
Article I, section 8, clause 5 of the United States Constitution delegates to Congress the power to coin money and to regulate the value thereof. This power was delegated to Congress in order to establish and preserve a uniform standard of value and to insure a singular monetary system for all purchases and debts in the United States, public and private. Along with the power to coin money, Congress has the concurrent power to restrain the circulation of money which is not issued under its own authority in order to protect and preserve the constitutional currency for the benefit of all citizens of the nation. It is a violation of federal law for individuals, such as von NotHaus, or organizations, such as NORFED, to create private coin or currency systems to compete with the official coinage and currency of the United States.
Quote
“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,” U.S. Attorney Tompkins said in announcing the verdict. “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,” she added. “We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”
newbie
Activity: 42
Merit: 0
I'm assuming that you are someone who is trying to follow ALL the rules as best as they can (and many of them are unclear right now).
If tomorrow Federal Government declares bitcoin as illegal activity, your IRS declaration will be prove of your involvement.
In other words, bitcoin was not designed to please the government.

If tomorrow it is declared illegal, then you stop. Up until that point you were doing nothing illegal.
full member
Activity: 285
Merit: 100
I'm assuming that you are someone who is trying to follow ALL the rules as best as they can (and many of them are unclear right now).
If tomorrow Federal Government declares bitcoin as illegal activity, your IRS declaration will be prove of your involvement.
In other words, bitcoin was not designed to please the government.
donator
Activity: 1218
Merit: 1079
Gerald Davis
I don't disagree with anything.  The same scenario can happen for those who exercise stock options for example.  It happens.  The only way to hedge yourself is to ensure you have the USD to cover the taxes and make payments throughout the year. 

Something like I mined 1 BTC today.  It is worth $x, my costs are estimated to be $y (electricity + ammortized hardware).  My gain is $x - $y and thus my taxes are going to be 25% * ($x - $y).  I will put aside that money now.  If it don't have enough I will sell coins now to ensure that I do.


hero member
Activity: 546
Merit: 500
The "good news" is that your capital loss doesn't disapear.  You can keep applying $3,500 of it until it is either gone or you die.  However yes what you described could happen.  I would guess most miners are not paying taxes on mined coins.  Still if you want to play by the book I would sell enough of the coins to cover your tax liability and put that money aside (and be sure to make quarterly tax payments) that way you are covered.

Yes, that is true, but you could be totally screwed for that year if you don't have enough savings to cover that tax liability.

I plan on paying income tax on my mined coins since that way I can deduct the costs of everything I paid to mine the coins (mining hardware, computer and networking equipment, etc).

The other issue is if you don't declare the mined coins and later sell the coins on the exchange that IRS says "where did you get that money? where did you get those coins?" you will not be able to point to any transaction where you bought those coins and established a basis for their value for the purpose of calculating your capital gains.

For small time miners maybe the IRS won't care. But for those of us who have hundreds of thousands of $ in bitcoin the IRS WILL notice when those bitcoins are liquidated and so the rules will need to be followed.
donator
Activity: 1218
Merit: 1079
Gerald Davis
The "good news" is that your capital loss doesn't disapear.  You can keep applying $3,500 of it until it is either gone or you die.  However yes what you described could happen.  I would guess most miners are not paying taxes on mined coins.  Still if you want to play by the book I would sell enough of the coins to cover your tax liability and put that money aside (and be sure to make quarterly tax payments) that way you are covered.
hero member
Activity: 546
Merit: 500
I am not an accountant, so please correct me if this is incorrect.

I'm assuming that you are someone who is trying to follow ALL the rules as best as they can (and many of them are unclear right now).

Here is a hypothetical scenario:

- You mine a coin a day for the month of November. Bitcoin is at $1000, so you mine 30 coins worth $30,000.

You would owe income tax on those coins, on that $30,000.

- Now let's say bitcoin crashes to $10 in December. You sell off the 30 coins for $300 and take a $29,700 loss.

You can declare that as a capital loss on your taxes.

Now the problem is the 30 coins you mined aren't a capital gain, they are declared as income. So you can't deduct the $29,700 capital loss from them. You can only deduct up to $3,500 per year off of your income.

So you'll be stuck owing taxes on $26,500 and have no money to pay it as your coins only earned you $300 in fiat!

This seems pretty scary. Am I wrong in this scenario or is this really what would happen?
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