Topic: Will miners in USA be able to remain competitive due to huge tax burden? (Read 4161 times)

Tax laws in the year 2014.

I'm not sure what people are complaining about. I'm actually surprised it took them this long to address it.

It comes down to this: You can't make free money. If you make above a certain limit, then it has to be either income or property. In either case, you get taxed. Now that there has been a ruling this should allow more businesses to work with bitcoin without worrying about what kind of tax or legal rigmarole they would get in for doing so. This should also put a dent in big mining operations (at least in the US) since now they actually have to pay taxes on what they make.

Also, before claiming something is a "huge tax burden" it's usually a good idea to actually take a look at the tax schedules. Unless you've got your own datacenter running in your house you probably won't be paying much, if anything once all deductions and depreciation are taken into account. In fact, it may end up as an additional tax write-off.

Who is banning it? The countries that are banning, usually are the ones nobody here cares about.
See this list http://en.wikipedia.org/wiki/Legality_of_Bitcoins_by_country, cannot say how accurate this is though. Are you concerned about the reds here?

Interesting theory, it sure seems to be working

I think the plan in the U.S. is to destroy Bitcoin by legitimizing it (enter the IRS). That way they don't have to look all totalitarian by banning it like other countries.

+1

It's not logical, but this is how most people will perceive it.

I don't think straight enforcement is the issue.  It's a scare tactic.  If Joe Blow citizen sees even one story in the news about a person who was mining bitcoin being arrested for tax evasion because in the course of a nasty divorce or < insert random reason why one human being would want to make another human being's life miserable > other event someone decides to drop a dime on somebody they know who mines then Joe Blow is way less likely to want to participate.  Also, when Joe Blow tries to start a conversation about bitcoin at a family function or xmas party instead of getting...
Conversation A.
Joe Blow: Hey you should check out this bitcoin thing.  I bought two coins and am mining making a small profit.  I even booked a hotel room with it last week!
Joe Blow's cousin Avvy: Wow that's pretty cool!  I saw something about that in the news but didn't understand what it was.  How did you get started?  Do I need a lot of money to try it out?

You get...
Conversation B.
Joe Blow: Hey you should check out this bitcoin thing.  I bought two coins and am mining making a small profit.  I even booked a hotel room with it last week!
Joe Blow's cousin Avvy: Bitcoin!  Are you crazy!  That's a scam and the IRS is TARGETING people who try to use it to hide money.  I even saw something about it on the news last week.  Are you trying to get me thrown in Jail?  You better not be doing that shit at the lake house next month, I don't want the IRS taking my house away because you're a fucking criminal!  Why don't you just pay your taxes like the rest of us you asshole!  Hey Minerva get the car!  We are leaving before this dick gets us all thrown in jail for money laundering!

This is just burdening BTC mainstream adoption, and the viability of using BTC as something for everyday transactions. I think that the rulings aren't a bother if they're used for big purchase.... What's the actual viability of IRS trying to enforce this?

Buying and selling is easy to account for, but adding in a mining operation with reinvested revenues and the enjoyment, and profitability, get sucked out completely.


This is precisely the purpose of the ruling...the collecting of whatever revenue they get from people who attempt to comply is a bonus.  They simply want to kill it by discouraging people from having anything to do with it out of fear of not being able to comply.
The sad thing is that it might actually work.

I'll tell ya one thing... I feel like a fool handing off my Bitcoin info to my CPA. This stuff is messy when you are mining, buying, and spending bitcoin on mining equipment. Leaves you with income, capital gains/losses, and equipment expenses. Just the complexity of mining X amount of BTC, buying Y amount, and then spending Z- the cost basis gets blurry and it's just a freaking impossible mess. The more you mine and spend the messier to gets, and the accountants won't be doing this for free when it's complicated. Seriously enjoy mining, love it, but considering retirement in 2014. Buying and selling is easy to account for, but adding in a mining operation with reinvested revenues and the enjoyment, and profitability, get sucked out completely.

Spot on. The moment the coin hits your wallet, it is regarded as a form of taxable income.

Above post is correct. Disclaimer: None of this is legal advice, just go to H&R block or something regarding "schedule C CPA" and self-employment taxes.

This is incorrect.  You are liable for the tax the moment you mine the coin.

Alts are "technically" regulated as it is consider like BTC (forgot the terminology, something along the lines of "alike gains")

Think of it as buying anything with anything other than money.  Gold, monopoly money, trading video games... They are all tax-free exchanges of property for products and services.  The only way to get a complete 360 tax on Bitcoin would be to declare it a currency unless they flip the rule books.

Its possible to cash out purely in products purchased, is that taxable also.    I would guess they'll just use random rules like this to confiscate and argue about it later, they are never wrong

Yes, but if you don't sell your bitcoins then there is no fiat to produce a tax from.  They can't ask you for $ when you don't have any coming from the property. I think that the tax will actually promote holding bitcoin and using it to buy/pay for products and services.

The tax was implemented the very moment they made the ruling that BTC is property.  There isn't anything else that will happen.  They are done.

I volunteer to store your coins in my wallet.

LMK

I expect that miners would navigate this pretty easily considering that freshly-mined Bitcoins are completely anonymous.  These also trade against other alts that are not regulated.  I expect a simple solution to be found by the time the tax is even implemented.

Thats a good point, its a global product.  Why on earth bother paying homage to gov bods in one country when it has zero transportation costs.  USA is not the largest consumer so I guess they cant just setup virtual import tariffs for this luxury good.

Lucky this is just one country.  How many people in the world, its the world that counts not politics from one place.


This relates to tax havens, to the Smoot–Hawley Tariff Act and just generally the inherent failure of government thinking and how it suppresses innovation in every field outside military and politics and this is why Washington DC has replaced silicon valley as the fastest growth area of the USA

My guess is I will mine BTC worth <$500 in 1 yr. For IRS, I do not exist!

Bitcoin is currently too small to fight back legally against the big guys.

Well it that regards you are correct, and they can certainly get away with it, they can do pretty much what they want and still get away with it.

but that the IRS can get away with it, does not make it legal, it is still illegal, with the big difference among us that some are implying that this law/ruling is valid, while some like me stating that is illegal and unethical.

This is like a thug walking to you at night with a gun and taking your money, you acknowledge that your money is gone but clearly see that his actions were not legit.

I do not like to break laws, but if I see a law that is clearly illegal and unethical I will have no respect for that law.

This ruling will destroy the US miners that tries to comply, my advice is do not destroy yourself, and for large mining operations they can move overseas in the land of the truly free.

What the IRS does not understand is that mining will continue overseas, and the difficulty will simply adjust.

I was talking about "This retroactive law is illegal. Any law that is retroactive is illegal." You are clearly unfamiliar with how the IRS works and their abilities. Any changes they make to the tax code are retroactive unless otherwise stated by them.

I repeat and stand by my word only if you id the wallet to yourself, this is something technical which if it is false, you can then  prove scientifically.

This in crypto science falls in the categorize of being able to id yourself while at the same time being anonymous, this can be done with pgp, gpg, and most crypto currencies including bitcoin, it is part of how bitcoin works. And there are a lot of scientific proves in this regards.

Believe me the IRS is not good at crypto (they have the NSA for that), they can  not regulate math they can certainly try but that is as far as they will get.

By the way trying to regulate bitcoin is  trying to regulate math, since it is like regulating the properties of certain numbers to taxes.
 
I am a computer science, I familiarize myself with cryptography, computer science, and mathematics, those rules and laws are  well written and well defined I normally do not like to waste my time other then having fun.


Since in  the early days of bitcoin we defined it to be a currency, and one of the properties for a currency is fungibility, the irs ruling destroys fungibility and then because of their won ruling it stops being a currency they label it a property  something it is not.

That is like you building a car and taking to DMV for registration, and then they take a wheel off and claim it is a motorcycle, of course if you take a wheel off of a car to make it a motorcycle by force it will not function well as a motorcycle, and it will not function well as a car since it has a missing wheel. Thats exactly what the IRS is doing to bitcoin to prevent it from functioning it as a currency, it has already  taken a huge dive in price.
 

Not at all, please familiarize yourself with the IRS' abilities.

Only if you identify your bitcoin address with your physical identification.
This retroactive law is illegal. Any law that is retroactive is illegal.


Also currencies are not supposed to pay taxes for themselves, only actives done to get income, having a job, making a sale, gambling, etc, but that is independent of the currency weather it is bitcoin or the dollar.

The dollar does not pay taxes, if you have $1000 dollars at home you do not pay taxes on the dollar, even if you have the $1000 at the bank the $1000 do not pay taxes only the interest made on the dollar. Why should bitcoin get a different treatment.?

The FED do not pay taxes on the newly printed dollars, why should miners pay taxes on the newly created coins.?

My opinion is that this law is not enforceable for independent miners, large mining companies will be force to go overseas otherwise they will not be able to compete at a global level.

In the town of San Ysidoro USA, the Mexican peso has high acceptance, and exchanges are anonymous and no tax is payed on the currency itself, a commission fee is payed for the service, and the exchange pays taxes based on the profit they make, but no tax on the Peso itself.

That double standard is hypocrisy, their real goal is to kill the currency.

There are a few good politicians that seem to accept it, but they are the minority.

+1

For the first point, here where I live in EU I have to pay about +33% vat and tax for the miners when I import them. There is no (good) manufacturer in EU.

The topic subject is embarrassingly parochial:

1) Doesn't the EU have to pay like 15% - 20% VAT on top of the list price for their mining hardware?

2) The average price in the US for electricity is 0.12/kW-hr.

3) As of Wikipedia 2008, the cost of electricity in Denmark is 0.404 USD/ kW-hr.

4) I believe also the all electrical equipment imported into Europe has to have CE markings.

Welcome to life.

so is this saying you mine 1 BTC, so you get taxed on that whatever the current rate is, and then if you cash out to USD you get taxed again or is it only on the diff from your cost basis??

Only temporarily so provides specific implementation do not know when.

The problem is, the ruling completely undermines bitcoin as a viable currency. So basically, it will fail. I hate being a negative nancy, but since the ruling, the value of BTC has dropped from 585 to 480 USD (and falling). So right now, at that price, no one is covering electricity with their mining profits. If you really believe in bitcoin as an investment, you're better off buying.

Yeah this is really unfortunate

Except you forget that Bitcoin mining is all over the world, not just in the US. The only thing this does is makes mining in America extremely unattractive.

If your expenses exceed your income it is generally considered a hobby. As for the price at the time you mine being your income, I think that would only be true if BTCs were money. If i dig gold out of the ground and put it on a shelf is there a tax liability? Probably not until you transfer it, or as i think of it, moneify(moneyfy? make it money, determine it's true value) it. If i mine bitcoins they aren't, in my opinion, taxable until i either spend them or sell them for fiat. At that time they are taxable at the current 15% capital gains rate. Of course, the expense of acquiring them is deductible then.

I suspect that this will only really affect the big guys, the little home miners shouldn't have an issue. And, in my opinion, the big guys deserve headaches the way they run the difficulty up.

Well I think this is a good news. Please read this article :

http://money.msn.com/top-stocks/post--3-reasons-irs-ruling-is-good-for-bitcoin

Good luck with that.

You do realize that MOST of the people caught evading taxes are reported by a friend/lover/neighbor/family member, right? See, they see you living above your apparent means, they get jealous, they call the IRS and notify you... hell they can even do it online at irs.gov ! This can easily trigger an audit, they come out to your residence, you deny them entry via the 4th, they come back with a warrant and they see an awful lot of expensive things that someone with your income can't afford. You can't show how you purchased them, as the items don't show up on your bank statements... you are hiding income somehow, they value (or seize) the goods and slap you with a tax bill (plus a hefty amount of interest) for tax evasion.

yes,
I have my own access database that i track all my numbers for my mining. I am just going to create a report that generates at the start of each month that tells me what my last month activity was. Take the average price, divide by 30 and thats my "income". take that number and add it to the other 11 months and minus all my deductions. Thats my "income"

I'm not 100% sure on this, but I think if you claim mining is a hobby you don't have to pay self employment tax. (As long as you aren't making an incredible amount of money)

Anyone knows how the value of bitcoin at the time of mining is calculated? Whats stopping me from 'selling' my bitcoins for $1 (and declaring their value this way) at an exchange located abroad?
I dont know what are the particular laws in the land of the free but in many other countries the central bank has to give you exact exchange rate for such situations.

The people saying that BTC will be squashed or destroyed because of taxes don't get ho business works, and why the IRS position is actually a good thing. I was at a panel at Harvard Business School on Tuesday and the challenges of BTC were discussed and the big one was the fact that there was no guidance, position, or opinion on how BTC would be treated financially. Because of this lack of understanding, and a host of other things - all of which have to do with maturity around regulatory and compliance issues - the adoption of BTC was going to remain slow.

The fact that there is now a position means that businesses can get on with factoring in the tax burden to their costs. A company doesn't leave the US because of taxes, they figure out what the laws are, what the loopholes are and manage to the rules of the game. Saying that BTC will implode because of taxes is just not true, it gives businesses some guidance on how to compute the costs, which up until now were zero, and could have been 100% because there was no guidance.

As for Belgium (or the next 30 countries) saying they won't tax BTC isn't necessarily a great deal either because the real estate taxes, VAT, cost of living, healthcare systems, price of gas/power etc. all go into factoring the total expense base which may in fact be WAY higher than the US and the laws there may not be what people see as just either.

What will kill Bitcoin is that people don't understand it a year from now anymore than today. Businesses can still use cash, pay taxes, and know what the rules of the game are.

This is why I don't think bitcoins have much longer to live. When everyone realizes what a nightmare that is, why would you possibly want to use bitcoin instead of cash? I'm going to continue mining because I'm getting free electricity...but I started mining initially because I BELIEVED that bitcoin could make a difference and be something special, and I wanted to be a part of that. This tax code kills it for the average consumer.

Ok sure the burden has always been there, but most miners have not been paying tax and in addition to every American miner having to keep track of the fiat price as their coins are mined the consumer is now going to be even more confused.

Every time someone buys a product with their bitcoins, they now have to declare profit or loss for that transaction compared to value of that coin when they earned/mined it.

But I digress, my point was more about how American Bitcoin miners can no longer remain competitive in the world. Before at least we could go under the radar so to speak, we had to otherwise the rest of the world would be too efficient for it to be worth our time. But now it's in stone, Bitcoin mining in the United States will essentially be impractical. Hardware that is cost effective in China most likely will not be cost effective in the United States.

I could easily be wrong, in fact I want to be.

i mine a good bit and even use them everyday. Not a single USD hits my bank account that comes from the exhange of crypto to dollars. There are services out there, in non reporting/taxing countries, that can give you a cash/gift card for bitcoins.

There are legal ways to minimize your tax footprint. Also remember you can declare expenses to deduct including the cost of the machine, electricity, internet, etc.

Factor in your expenses and i guarantee you wont hit over 10% on mining

so either mine for 10%-15% tax or work and get taxes about 40-50%

ya.....this is not bad news....at all for miners.

While this may not change much (if anything) for how miners are required to report income, it has huge repercussions for merchants and consumers. Why would I as a consumer want to buy something if I have to worry that the currency I use to buy it will require me to pay capital gains taxes after the purchase? It renders bitcoin as a currency useless. If you considered buying bitcoins as an investment, like stocks or index funds, then no, not much has changed. BUT...bitcoin is supposed to function as a currency, not an asset.

Denmark announced no taxes on BTC.. if you have a mining operatoin creating +10k a month why stay in america?

BTC will survivie, it's only the land of the slaves errrr free that this applies to.

Also.. any large mining operation will move no questions asked.

 Your question shows a complete lack of understanding tax laws.
 the burden has always been there. .
 All miners in all taxing  countries were obliged to pay taxes.

 This changes nothing and if you understood a litlle of USA tax law you would be happy the IRS-US government finally gave guidelines.

That sounds pretty legit. Let me see if I'm following you here because I might adopt a similar practice....basically at the end of the month add up your mined BTC total. Then calculate the average worth of bitcoin over the same month, and then that's your monthly income?

Its actually not as bad as people are stating. You can claim all your expenses on your taxes as deductions. Im going to log how many bitcoins in mine at the end of each month, divide by 30 for average per day and if i get audited in the future ill just find the dates per year the value was the lowest, calculate my 15.2% self employment tax, minus my expenses and pay that as tax. with the expenses deduced it will be well below 10%.

So can I buy mining hardware which wont ever ROI and write it off? 

Yes you can definitely claim hardware and electricity as operating losses. Check out the first link the OP posted. It's still very confusing...there's a lot of grey area as far as how you can spend an accept bitcoin and how to keep track of what it was worth at the time you either bought/mined/spent/received bitcoins.

Hmm what about overheads, money spent on mining hardware, electricity paid for, do these count as losses? Does that mean those mining at a loss can write it off on tax as a loss?

Surely bitcoin needs legitimacy and of course it will be impossible to trade in it and bypass every nations' laws (none of us expected to anyway), but there's so much to yet be defined...

so if the IRS considers bitcoin property subject to property tax.. what if we host our wallets on servers located in other countries.. would we have to claim it then? so many questions..

For those of us who don't want to pay an insane amount of back taxes, maybe lose our home, or worse, end up in jail, let's pretend for the sake of argument that they do know how much you mined. Most miners are eventually going to change their bit coins to USD, and in that case, it will be very hard to cover up.

What I really don't understand is that no one seems to be talking about it on this forum.

how would IRS know what you mined?

The new tax code is a logistical nightmare. I can't see bitcoin surviving this. So am I supposed to keep track of my daily mining payout AND how much bitcoin was worth at said payout.? Then at the end of the year you would have to figure out how much the payout from each individual day fluctuated by years end to come up with your net gain or loss? Is that right, or am I missing something...because that seems insane.

User modeless on hackernews reckons all USA miners will have to pay 40% of every mined coin!

http://i.cdn.turner.com/money/2014/images/03/25/IRS_Notice_2014_21.pdf?iid=EL

https://news.ycombinator.com/item?id=7467721

http://www.bloomberg.com/news/2014-03-25/bitcoin-is-property-not-currency-in-tax-system-irs-says.html


It seems like the latest tax advice from the IRS will put American miners in a less competitive position in relation to other companies that will likely never pay any meaningful tax.

Basically you have to deduct the amount earned in fiat in real-time as you mine your coins. People who mined during the peak and did not convert into fiat are now liable to sell double the bitcoin just to pay their taxes.