Topic: USA IRS a "Farmer' I am. Legal Mining in USA. (well my CPA's version) (Read 1407 times)

seems odd. in the UK at least, you only pay tax when its converted and gains are realised.

typically through selling (e.g. $ goes into bank account), but would also apply when you realise its USD value i.e. buying something through bit pay that was priced in dollars.

That's a bit more of a grey area potentially though and some people might feel that gives them a little wiggle room... probably not a great idea though unless you could be absolutely sure that the *public* bitcoin ledger doesn't show exactly who bought what and when

my bank messed up 6x a wire xfer...plus the other  4 i did and 3 came back as refunds from knc
so my bank went after me said was gonna report me to the IRS etc..ie I'm a drug lord...

figured so many pieces of paper broken wire xfers or otherwise all for more then the 10k reporting limit I should maybe
be legal this year and file ..so I did (1st year btc miner etc anyway)

glad I did had to take the 'legit' tax return to the bank to get this fixed..they really did not like that it was their
mess up and the did not seem to like either they could not hang me for their paper chase to the IRS

so again expected to eat the 4k of 16k under current rules of profit to the IRS..then due to equip I purchased
last year and stuff this year...found out I'm not in such bad shape as I'd imagined at 450 btc coin

but yeah I likely would have done as you did and waited till the IRS rules are tweaked (likely by congress this year)
etc

was not an option on my part ...kinda backed into legal....may work out a bit better in that I like to mine

anyway my view/situation

Searing

perhaps not but i get 50% off equip this year...if as anticipated the tax breaks from last year are continued at a new equip purchased for biz at 50%)

taken away from my gross income made in BTC  less the 25% cut to the IRS of mining profits...
after the equip/home office and other stuff is taken out..including 20% depreciation more or less from last years equip

that knocks my tax bill down quite a bit....and if played out from even only 3 of the full 5 years is a significant equip savings up to 100%

and I likely will make at a min 50 coin this year ..more likely with the equip this year 75 to 100 coin

so my 'taxes' and due to the above is much more sensible imho on this dive into equipment

well...again makes sense with the equip I have coming in the pipe already in addition to what I've already mined this year

so ....with the above investments in mind...basically for every 10 bitcoin I mine (counting what i expect to pay in taxes to iRS and elec for the equip this year)

I keep 6 out of 10 coin I make clear and legal...assuming I can play this out for the full 5 years of depreciation..that is an IF and  assuming i can continue to apply it

towards a tax burden in a prudent manner...but again it sure helps on the stuff I have this year already...

I can live with that...drinking the bitcoin kool-aid and holding and expecting BTC to survive in some form for 5 years or more as a given? hopefully?

(sorry if i was using terms wrong in previous posts...this is a learning curve for me)

hopefully in my clumsy way this shows my "logic' or lack thereof on what I did last year to save around 4K I should have paid on 16k mining earnings due
to the IRS and maybe as much as 6K this year...with further 'usable' deductions in the future "knock wood"...etc

anyway my take on this if clumsily explained


Searing

I won't be reporting anything. I never convert to fiat and I bought my equipment so they have no way of knowing I mine.

There is no "25% special mining tax" it is income tax and like any other income, the tax is progressive from 0% to 49.7% depending on how much your income is.   $20,000 in wages is no different than $20,000 in mining income (income not gross revenue). 

Yep I"m likely clueless....just trying to get this out there...This is what I found out from my CPA....

but if you are holding and getting equip as I am ....seems to me not a problem

you will pay the piper...as you ease out of mining equipment imho in the future ..but I'm holding so

I am playing this game long...will wrap up tax burdens down the road as i get out of equip

I agree with you on the above..I'm stumbling around here. This all was rather hurriedly
explained to me by my CPA so hey shoot me.


But the IRS states it is a 25% tax on income...ie what you mined out of thin AIR they want their cut
on the other side investment in equip is depreciable....so anyway before the guidelines this year...I'd already
done my taxes...asked CPA she said ..did you sell any I went nope..she said no capital gains etc don't worry
about it

20 days before tax was due april 25th the bitcoin irs guidelines were made and I had to amend my taxes
thinking I flat out owed the IRS 4K and maybe getting a bit off as a home business...thus my shocked
ramble and this thread

I do expect them to go away though likely next year these IRS changes...in other words back to equp is your risk.and
not deductible..your risk to buy the equip to make ROI.....and if you sell coin you pay 20% captial gains
this keeping track of each coins worth when you mine or sell it vs when you buy stuff is a joke

that was the way the CPA said it was BEFORE any guideline or some perhaps I'm wrong...

Perhaps I ALWAYS could have deducted equipment in the above manner...and paid taxes to the IRS
but up till that point i thought equip was not deducible and getting bitcoin equip was your risk
so imho staring a miner Oct 18th knc 555 gh jupiter making 32 coin for 7.5k in equip/power supply
I was not complaining too much ...anyway was (my 1st yr mining) perhaps more savvy miners have always done
this with IRS.

my 'bad' attempt to say what I found out after the fact may be dumb...but hey if I had any sense I would have not made this thread

So anyway for me last year this worked well and looks to be same this year ..this is a good deal in that I'm investing in miners..and holding...after this ...
well profit for this little btc biz may have to drift into other aspects of BTC accumulation...as I get
out of mining or greatly limit such

anyway if I am so far off the mark as to be someplace to the left of Pluto feel free to explain
here to learn not impress anyone with my knowledge or lack thereof (which likely I will informed
of very soon of the later)

I invested in BFL (did just get a refund..er all due to dumb luck)  so I have NO ego to speak of anymore in
regards to bitcoin ..would rather be dumb and get a kernel of truth....then sit alone in the btc
barren geographic landscape that I am now.....

so it goes

Searing

OP never do your own taxes.  This is very basic taxes and accounting.  Income = Revenue - Expenses.  It is called an income tax not a gross revenue tax for a reason.  This isn't Bitcoin specific.  If you made disposable barbaque lighters you would be taxed on .... the income (profit) not the gross sales.

Also there is no magic 25% tax.  You pay income tax and depending on the level of your income that might be as little as 0% or as much as 49.7%.

TLDR

man this is too long to read.. lost me after the 8th paragraph  

TL;DR

OP seems shocked that the IRS taxes income which is revenue minus expenses, and does not tax top line revenue. OP also seems shocked that capital expenses may depreciate over a period of several years.

If this is the state of financial savvyness in the miner community, it is no wonder equipment has been unprofitable for months and everyone is about to lose their shirts once difficulty rises to the point that operating costs to exceed revenue, making mining a cash flow negative proposition.

2013 told CPA about Bitcoin showed them the IRS Guidelines ..ie Bitcoin is a valued asset that for if "mined' you can
get a 'gross income" from that is to be taxed at 25% by IRS (less with deductions) by IRS.

Must keep track of the coin value when you mined it. (ie hits my blockchain address) and if sold before 1 year and 1 day is subject to
capital gains tax if increases in value of 47% capital gains tax penalty (I think it is) on top of the 25% normal tax paid for 'gross mining' the coin out
of thin Air the IRS expects you to pay. By showing you are not 'speculating" on this asset by keeping it more
then 1 year and 1 day.....if you sell at that point you pay only 20% tax on any capital gains. The 25% tax for mining
is only a tax for you 'creating' bitcoin out of thin air and is valued at the time/price it hits your blockchain address.
And of course the other side works if bitcoin crashes to 100 usd a coin you could take a loss on your bitcoin..(shudder)

With me so far...

OK in 2013 made 16k gross mining ..go to Tax lady CPA expect to pay $4k of tax on my $16k of gross miner income
I made mining on my Jupiter KNC 550gh unit/gpu/other

Explain Bitcoin to the CPA lady...she looks up rules....says it is pretty straight forward
the infamous IRS Guidelines on Mining bitcoin....25% tax on gross miner income
 ..ie you are a "Farmer" she says

er I go huh?

Yep she says we can get most of this written off with equip purchases...

again I go huh?

She starts by making me a 'new business (some kinda angle there) ...she shows all my equip i have ordered
or at a loss KNC BFL (loss) GPU/Towers /usb sticks/ etc

 I had around 30K in equip I could write off (some did not work to well like 3.5k in gpu..but hey it was a miner)
this is a 50% immediate write off of any gross income you owe taxes on
...50% off equipment  applied to such used for your
business...a stimulate biz to buy equipment and prop up the economy kinda thing. was in effect in 2013
we expect it to be in effect for 2014 too....

again I'm like huh is this legal?

She said...if you are being legal on your btc earnings and taxed 25% on the gross income you are mining..then you can depreciate
that cost in equipment purchased for this purpose over 5 years and get full price back for you equipment in 5 years....The IRS wants you to succeed
so they can get 25% off of your hopefully expanding biz for the rest of your life..so you take a risk with
equipment to make a new biz..this is the incentive for IRS to help you along for their cut..by letting you depreciate your equipment ..ie you are a farmer.

ie farmer gets a tractor he uses
to pick crops....w/o tractor not efficient  enough to work at that scale and get crops..with extra crops to sell
to others ... so with  tractor (equipment) depreciation by the gov't (IRS) where
you eventually get the cost of the tractor back over 5 years ( same case of bitcoin equip ..ie computing..ie computer
equipment) then makes sense to use tractor YOU BUY BUT GET BACK IN FULL LATER on those crops and sell excess crops to others..(TO PAY IRS) if still stuck with
a mule would only get a crop for yourself..no extra to sell ...making the pie bigger so the IRS can keep getting
its cut of your adjusted profits in the future...capitalism thrives..everyone cheers...beers for all.

So if I stay legit 'biz' home office/ new biz incentives 1st year etc etc for 3 of 5 years show a profit over that
time period of some kind...you get ALL YOUR EQUIPMENT PURCHASES BACK THRU DEPRECIATION EACH YEAR
FOR THOSE YEARS TILL ALL FULL PRICE ITEM IS PAID FOR...in other words if you are into holding bitcoin and
plan on this long term (at least 5 years) you EVENTUALLY will get your miner equipment paid off thru depreciation
(assuming which I do that BTC will be profitable in 'holding' in the future to make this worthwhile)..so by being
a holder of bitcoin I assume coin will rise in price (speculation) and that if there is a tax burden at the end of
this equipment depreciation against gross income game that 5th year...I'd be more able to pay such at hopefully
2k coin the 450 usd coin AT THAT TIME. ..the CPA lady says EVENTUALLY you will pay the piper..either when
you wrap up equipment to mine cause that don't work anymore or you die..the IRS will always win....but with
the nature of BTC imho and holding etc...go with what BTC I can get now and if i have to cash some at my
hopeful hording price of hopefully much higher btc per coin prices later...to USD ..will imho be in a much better
position to do so 5 years from now

also heh when btc then is 10k a coin won't have to hide my houseboat from the IRS be squeaky clean heh  (I wish)

er OK i say (still an't quite got it

so anyway on the 4K I expected to pay on my 16K profits mining  in 2013 (this is the successful knc miner a knc jupiter
bfl loss and not so successful gpu miner ..still counts i guess.. etc) I paid 550 bucks in taxes 2013 rather then
the 3.5k I expected to pay...so was quite smug only paying 550 on my 32 or so coin from 2013 I think it was.

so hey just saved 3.5k in taxes 2013 ...not bad for trying to follow a 20 day slap'd together IRS guideline
on virtual currencies before april 15th tax deadline
had to amend my  taxes with CPA in that time frame with these IRS guidelines tossed at us. (By the way
the guidelines are just that a guideline..so CPA said all this is in 'good faith' they can tell us different thru
other guidelines on bitcoin or rules changes..but can't be too harsh on people trying to figure out this quideline
ie same viewpoint of the guy we called on the IRS help line by the by)

My convoluted ____ LOGIC ____ this year 2014

OK this year..2014..(MIGHT) have the same incentive off equip of 50% equipment used in biz..if not
I think it goes to 25%..still pretty good....lets assume it is the 50% equip deduction off gross income you
make in 2014 for now..the 2013 incentive stays in 2014

20k in equip i have here/order 2014 approx savings (works out this way which i think is correct..the 50% off equip i get this year
plus the 20% off equip last year...have a Titan coming an alpha scrypt miner etc)...so of that 20K in equip
that would be 10k off gross income..to be determined

I get 1/2 off my gross income the 50%

Ok with 18 coin this year knc jupiter/other I SHOULD i would think be able with the alpha scrypt (mine alt
coins scrypt but auto cash to bitcoin) and the Titan 300mh scrpyt the same...other units..I SHOULD
at a very conservative i mean rock bottom conservative get at keast

50 coin this year...likely more but lets say its 50 coin mined out of the "bitcoin ether' via gh machine or scrypt machine and converting it
remember I hold btc if at all possible..drank the kool-aid don't ya know

50 coin at lets say a the end of the year a modest (very modest imho) ave price of 500 a coin

That is 25K of gross Income I need to pay taxes on ..ouch..at 25% that would be a $6250.00 tax (probably
less with other tricks like the home biz etc..but just say this for now)

with 20k in equip in 2014 and 50% off equip depreciation still in effect like 2013 that is now 12.5k in gross
income

with 20% of depreciation for 2nd year equip from last year etc..added to all this .that rounds down to 10k lets say

25% of 10k is $2500 in taxes vs the 6250 without the equip break this year and continuing from last year
..but remember the equip
will eventually depreciate ..if i have a tax to pay ...down to nothing (or i pay the piper the last year
of depreciation to wrap this whole miner biz up in a bow with check that year to the tax man with no
equip to offset..a big ouch)

But anyway 2.5k in Tax for a profit of 50 coin or 25k seems rather nice ..and with at least 'most' of
my equipment depreciating to what i have into it in the 5 year process in reality..the price I paid
to make this coin is around 4500 bucks in ELECRICITY as my estimate incl cooling for the 6 month
life cycle of these miners (ie rest of this year with other stuff ) (best i can figure the 2500 of my gross taxes...so
total in electricity and taxes and eventually maybe NO COST in 5 years in depreciation of the equipment
(or a big hit with nothing to write off that last year of depreciation and just eat the taxes)

electric for the year...modest elec 1st 1/2 of year bear 2nd 1/2 of year and the taxes paid
figure it is 8k total

8k of expense this year for 25K worth of bitcoin at 500 bucks a btc is not bad at all imho for every
coin I make I'm keeping 68%..the giant PH farms in America have suddenly made a lot more sense

IT REALLY REALLY LOOKS NICE if BTC would go up to say 1k heh ..then the 8k on 50k would
look a lot better (acutally this year would have to prob hit 2k a coin for this to work but you
get my drift)

Sure say in 5 years BTC is 2K a coin....and that last year I make some coin but am getting out of
miners say..no equip write offs...that year I eat a big tax bite..but with the btc made legal the previous
years if this whole btc thing works I can do so..with btc at a better price etc lots of hopefully
coin held till then etc

so anyway looking at the above.....if i can keep even 6 out of 10 bitcoin free clear and legal
over expenses like elec and such plus pay my legal obligation to the IRS That don't sound too bad
for 2014 and even 2013 looked pretty good in hindsight

even if the 50% off equip rate goes away in 2014 and goes to 25% again....say keeping  a 4 coin
profit for every 10 coin made still an't bad at all imho

sorry for my convoluted writing style hopefully it made some kinda sense...

last point if i DID NOT go legal via USA and IRS.and had 20k of equipment that made 50 btc at 500 a btc

that again is 25k ..you add the 4.5k of expenses ie electric on that and mining in the USA was an 8k loss (20k equip
no depreciation and 4.5k electric i'd break even kinda sorta) so going dark in usa does not look good with
the above imho

in other countries wthout this 25% off gross income mining tax you would have been with my elec costs
of 15c kwh only it would be more or less a wash imho.....you got probably as much coin at 450 as you
could get equip for...miner made the same coin as if you just bought the coin

so mining seems at least to starting in 2013 and 2014 looking at what you get for bitcoin purchase
and bitcoin mining with equip depreciation.....the legal way seems the way to go imho

anway take it all apart if you wish only goes what I know at this time and this tax year..or heck
what I did on my amended taxes this year with the IRS guidlines..likely bitcoin miners will not be allowed
5 years as computer equipment ..likely other changes may/are coming...again my take on this

but right now with advice I have I will hopefully get by mining 10 coin in my pocket outside of expenses
and taxes ..so out of 10 coin I can keep 6 coin..that works for now

seems that last year and this year *maybe*  at least this  is the game to play

try to be kind when you cut me up on all this...and by the way I asked the CPA lady and said no way
a bitcoin miner can be used for 5 years depreciation etc..she said well some computers are used only
the 1st year. same with farm equipment .just make sure i keep the equip ...ideally still hooked up even if off..its not like the IRS
expects (at this time) a tractor to be used 24/7....if you sell it the income is gross income and the
deduction will go away.

so do your own research...don't take my advice I likely broke 19 laws saying the above..this is just
how myself and my CPA see the IRS guidelines at this time...more clarification things will change
but at least now I know why all these giant PH farms are still going balls to the wall ....had me
scratching my head ..any equip they put in they get out of 10 coins be able to keep 6 coin!!
er duh ...makes sense why they are still expanding big time in usa imho

my 2c worth and again this is how I did my taxes and how I plan to do them again in 2014

and of course the advice from my CPA...if this is all wrong..I"ll simply diddy up the 3.5k from last year
or whatever in taxes..with the guidelines the CPA said...we can only act in good faith..and in her
opinion this is straight forward equip for a specific purpose that generates gross income that the
IRS can tax thus depreciable.worse that would likely happen is a correction which promptly done
would not be a big deal....i stepped up and followed the guidelines to the best of my ablity in 20
days by amending my taxes...so got that going for me if any issues in the CPA's view.

so anyway our take on this

again am not a tax professional I'm passing this along ..if it looks interesting talk and make your
own choices on the 2013 IRS Guidelines and what you expect for 2014.....but my take on the above
with my CPA trying to pound it in my head...may not mine NEXT year

..but with a Titan NON-REFUNDABLE
from KNC before they seem to have gone off the rails..and of course the Titan order BEFORE the IRS
bombshell..had to look at mining legal this year quick..have never sold a bitcoin so 2013 etc not an issue
...so anyway a miner this year even if it is the last year with future changes.how i'm approaching all this
drama with IRS etc..and of course hoarding bitcoin also helps my justification in mining and the above too

so it goes hope this is helpful to people

Searing