Most of my earning have come from mining on two machines way back when the mtgox price was.... .20 cents a btc (early 2010). I generated quite a few coins. This to me is a taxable event because I now have something of value that far exceeds the costs of electricity and hardware.
Suppose the MtGox price had plummeted and your BTC had become worthless. Would you have been entitled to a tax deduction for your losses? If not, it hardly seems fair for you to be taxed on your gains.
It seems everything is classified as a hobby with write-offs disallowed until you make the first cent of profit, then it's a taxable enterprise. The laws are always slanted in favor of the US Treasury. However, if it Bitcoin became classified as a true currency, you could likely write off the first $3000 per year in losses (with carry forwards allowed). This is my understanding at least.
Laws on hobby income are weird. The government tries to make everyone report things as a hobby unless it's in the governments interest to make you classify as a business. I had hobby income for a few years where I may have been able to count it as business income, but it made no sense. I would have had few deductions and would have had to pay the extra social security and medicare taxes on it. Usually, the government is very strict about what counts as a business. I filed as hobby for a while. Then they mailed me and said the previous few years should count as business income and I owed a lot of money. It took a big fight but eventually they let me count it as hobby.
You can profit and still have it counted as a hobby in some cases (I won't advise on which cases those are, though, save that for a lawyer). Even if it's not a currency, you could deduct losses (if I traded baseball cards at swap meets, I could deduct losses if I had been profitable in the past).
