Topic: US Mining Hardware Deduction/Depreciation (Read 14099 times)

i was told as a miner with the IRS guidelines...that state that bitcoin is "property" ie land...(my CPA laughed said i was a farmer) that i had to keep track of when/how much btc was when it hit my address *used the little chart on coinbase for my 16 transactions*...and thus that was my 'gross income" taxed at 25%

IF>>>> I sold any bitcoin before 1 year and 1 day (like land) I would have an additional 46% capital gains tax...if i just bought coin (did not mine it) and or sold my mined coin that i already paid taxes on to IRS after 1year and 1 day then the capital gains tax on the increase is 20 %

yeah sucks

on the other hand being a *farmer" equip/home business..etc etc ...did the short form of home business checked the box on form version etc* ....CPA went to town and on 16k of 'gross income" mining...i straight out owed 4K i paid 550 usd

so know I know how farmers do this stuff..borrow like hell ..hope next years crop comes in 'great' or in my case BTC is high next nov/dec when i can cash out some coin IRS target free

so it goes (should link a farming song here)

http://www.youtube.com/watch?v=umS3XM3xAPk


seems appropriate I'm about that clueless

Searing

Not a lawyer or accountant, but here's how I'd figure it.

You mined the bitcoin for a value of $400, it's the same as if your boss (for a typical job) paid you $400 that day.  So you add the $400 to your regular income.

You can then deduct the $490 (as a business expense expense if you're running your bitcoin mining as a business, or as a hobby expense if you're not a business but itemize your deductions).  Either way, you'd net out with zero income, so no extra tax there.  That said, consult with an accountant on whether you can deduct the extra $90 loss from your other income. Also, you can't deduct at all if you mine as a hobby, and you take the standard (non-itemized) deduction.

Next, you sold your bitcoin for $500. This means a capital gain of $500 - $400 = $100. So you pay capital gains on $100.

yep pretty much what I did (prev posts) and got a bunch of stuff for being a "new business" on startup costs .....not sure what the hell was going on actually but the above
sounds right sole proprietor home business...deductions of miner equipment etc

anyway the CPA seemed like she was having a hell of a lot of fun...tossing money back at me....so whatever...main thing I got form this is "mining' is taxed at 25% gross income...and I made 16k i should have paid 4k in taxes..because the only way I can "make* that gross income as a miner income is to have equip to do so...well...in the end I paid only 550 bucks out of that 4K on my amended tax return

er on a side note...she had me "make a profit" on last years taxes....so I'm not in the hole yet...as to the above comment you have to show a profit in 3 years...

anyway imho worth the 550 extra to amend my taxes just not to have IRS off my back if/when I may sell some coin (as per their property classification) 1 year and 1 day from when I mined it...ie this coming nov/dec

the game will likely change this year again...it is all in flux...so 2014 it likely will be completely different yet again

anyway the CPA seemed to have a good time...was much grinning and chuckling to herself

Searing
 

Guys in the US.

Just go and incorporate yourself as a company.  LLC, small corp, sole proprietor, doesn't matter.  Spend the  roughly $120 with the state and become a company.  You can afford it since you can afford the miners.  It gives you all sorts of tax breaks.

Miners can be computer or manufacturing equipment.  Classify it as computer, great, then you can use Section 179 accelerated depreciation schedule.  Section 179 lets you deduct a great percentage of  the miner market value.   This depreciation offsets your BTC income.  If you don't have enough BTC income in fiat terms, then it offsets your regular work income. 

With a corporate like structure, you can deduct or subtract the electricity cost, internet access cost, network and router switch cost, home cooling cost, trips to BTC convention, gas cost to meetup with your mining buddies, etc.  Basically all these cost deductions will more than offset what you made in fiat when your BTC is mined.

Only thing to watch out for is the 3 year guideline.  If you don't show a positive book profit after 3 years, then IRS can classify your mining operation as a hobby, and reduce your past deductions.  May result in back taxes.  One smart person told me, if that happens, then just close up shop (shut down the company) and stop mining.  It's not profitable anyway.  3 years is a long time in BTC land...

** Not legal advise.  Consult with your CPA or tax lawyer. Keep invoices and receipts when going the corporate route.

that is what my CPA did wrote it all off..if they want to tax me at 25% for mining bitcoin then the equip to do so is depreciated as such

anyway went in thinking i had to pay 4k on my 16k gross profit according to coin desk paid 550 (750 with cpa fee) usd

only thing is if i get a refund on bfl equip (seeming more likely) then that will have to count as revenue this year on taxes in that i wrote it off

also got breaks for home office and being a 'new' business etc etc..was a grab bag of deductions last year

so anyway ...key point here is 1 yr and 1 day say next fall i can go nuts with my btc and purchase what i want and wave my 'legit' tax return in IRS face

for 550 bucks its worth that imho! the whole 46% tax capital gains tax if less then 1 year property thing and 20% on gains if more then 1 year and 1 day.

anyway how i did it with CPA advice..they wanted me to be a business i bloody well jumped in the pool as a business..er also got a Titan 10k unit

last year was paid for (was neptune switched it)....CPA lady said she wanted to take it off 2013 taxes in that i paid for it then i was like 'why' she

was like well it is 2.5k for taxes w/o it or 550usd taxes with it..so hell sure....take it off..so in real $$$ its like getting the titan for 8k vs 10k from knc

stuff like that it was all quite the 'republican' tax dance hoopla kinda times at the old cpa office

anyway the way it went down for me on IRS usa taxes

Searing

There are 2 ways to approach this that I see. One is claim it's a hobby and use that route. For me since I just started and am looking at equipment investment.... Not sure if it would work with the IRS but it's likely they're looking at the big miners.

The other is treat it like the OP and go the safe route and use a CPA (also gives you some legal cushion I would think). Another thing that's likely going to happen is some major player will contest the guidance of the IRS. But that'll take some deep pockets, I'm sure!!

One more thing as a side note...I used to play a lot of online poker. I actually got to the point where I was able to hold my own and occasionally score some big wins (that being a couple hundred bucks at a time  ). The feeling in the poker community it wasn't worth reporting until you started having net wins for the year over $10K. Anything less, then it wasn't worth the IRS' time to look into it.

That said in the way BTC is traded and such...and that the way poker is played could be compared...

Anyways, hows that for my first post on this forum?? 

Sure it does, in your model (which is correct in my opinion), you are being paid in BTC to provide a service. This ends up having the same effect as applying the original guidance to solo mining (income at the time of mining, then capital gain/loss if and when sold).


This is likely true to a large extent, but what you posted above does not demonstrate it.

In any case, to answer the OP, you should talk to an accountant. If the equipment has a useful life of less than a year, you do not put it on a depreciation schedule (publication 946, page 6). Even if for some reason you put it on a depreciation schedule, when you dispose of the property you can deduct the unappreciated value as a further loss. This ends up being about the same.

Finally you may be able to take a section 179 deduction for the equipment and expense it that way instead of depreciation (but again, not if it doesn't have a useful life of more than a year).

The tax laws are arbitrary and often dumb, but in this case it isn't that bad.

Yes because your cost was already deducted against revenue in the first place. You're trying to double-deduct costs. Leaving out the income component of this situation gives a distorted picture exactly like what you described.

So your mining business nets $10 but you pay taxes on $100

Capital gains is on the $100, because the fair market value establishes the basis.

a story problem


mine 1 BTC at $400   - logged as income
Cost to mine that same 1 BTC - $490 logged as expense

net loss - $90

sold same 1 BTC at $500


do you pay capital gains on $100 or $10?

So you're deducting it over 2013-2014?

I agree with some of your thinking, BUT you are ignoring the IRS guidance. They said when it's mined it's to be treated as income, regardless of your decision to actually exchange it or not. Is it kinda bullshit? Sure, but that's the rules now. I think it works a lot similar if you are paid in a foreign currency for a service. Say instead of Bitcoins we were mining Euros with our ASIC chips. So you provide the service of mining with your equipment, and the pool pays you Euros. The moment you receive the payment is when you record the income in USD for accounting purposes. If you decide to hold onto the Euro it doesn't matter, the IRS still wants you to calculate income in terms of dollars and pay the taxes with dollars as well.

Totally agree it's BS and nothing more than an attempt to regulate btc out of existence but I also think it's a stretch to say they are asking for comments.  They allow people to submit comments, kind of a different thing.  And if I had a nickel for every random Senator who was drafting a bill I wouldn't need any bitcoin...lol

The IRS asked for your comments, so it does matter how you interpret it, otherwise they wouldn't be asking for your feedback!

I have no idea what the price was when a coin was mined, do you? And which market price are we using? MtGox price was pretty low recently, the prices can differ by a wide margin depending which market you look at!

So you see it's bull, the only price you know, is the price you sold it at! That's because it's the only price that provided you with income!

Digital currency miners—the people using their computers to solve complex math problems in order to release new money into the economy—have to track the value of their coins when first mined as well as when they use or sell them. If a miner mined one Bitcoin on January 1, 2013, when it was worth $13, then they must report $13 in direct income. Then, if they sold the Bitcoin on December 31, 2013, when it was worth roughly $1,000, they would be subject to capital gains tax on the $987 difference

In order to properly report taxes, miners must now closely track when they successfully mine coins to determine their original value.


I'm sorry Gator but it matters not how YOU interpret it...According to the IRS you are liable for the value of the coin the moment you mine it, even if you never sell it.

When you exchange your Bitcoin for equipment you realize your gain...

There's no income until you take your asset/commodity to market and sell it for money.

If you paint a picture, it provides you with no income until you can find a buyer for it, and turn it in to money. You cannot pay your taxes in paintings!


As far as I'm aware Bitcoin hasn't been declared as official US money so we cannot be mining an income!

http://www.bitcoinx.com/texas-congressman-plans-submit-bill-classify-bitcoin-currency/

When you can pay your taxes directly in Bitcoin, and it incurs no capital gains tax to hold it like money, then you can claim it's income as it's mined!

little update... to my surprise my CPA put the equipment on a depreciation schedule. He is aware of the short useful life, but his reasoning makes a lot of sense. We will depreciate for 2013, since I only mined for 2 months if we took the whole thing it would have been a massive one-time loss, which really wouldn't have done me any favors year over year. By depreciating we can recapture the losses next year on the equipment sales. I already dumped cubes around $150-200, which is significantly less than what I paid for them a few months back, so that will show up on 2014's books. The filing came out good (felt fair), and all my records were clean and detailed, overall went smooth and unless BTC goes to $0 I'll probably be in business mining another year.

keep it running and depreciate it like any capital investment, for example, a computer.