IRS deductable expenses for miners

[Sector7G]

Now that Bitcoin has legal status with the IRS, I'm curious about tax deductions.  Refer to IRS Publication 535 for business expenses.  In some cases, a person with a home based business can deduct the cost of insurance or utilities.  I wonder how this might apply to people who mine at home.  As stated in their document:

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry.

Electricity and internet service are necessary to mine Bitcoin.  So I wonder if I can deduct them.  For that matter, I wonder if I can deduct the cost of hardware too. 



P.S. I apologize if this is a double post.  The forum is giving me some funny error messages.  I did a search before attempting to post (again), and didn't see my thread.

[bridgesro]

Electricity and internet service are necessary to mine Bitcoin.  So I wonder if I can deduct them.  For that matter, I wonder if I can deduct the cost of hardware too. 

You may have to deduct a percentage of the amount used for the business, which will be difficult since your electric bill is for every appliance in your home. But if you come up with a reasonable calculation, you'll be fine; you could probably apply that same percentage to the internet bill as well. The hardware would be pretty easy to calculate: mining hours divided by total hours of use.

[J_Dubbs]

Equipment with less than a useful life of 1 year cannot be capitalized, I.e., put on a depreciation schedule. Historically speaking, if you see only 8 profitable months use out of an ASIC miner then it's less than 1 year and the equipment cost is a one-time expense. In my operation I'm planning to sell equipment in under a year, so nothing I have is suitable or possible to put on a depreciation schedule. This outlook may change if BTC significantly appreciates in value. But I can also see enough complexity with this crap to just resign from mining all together, seems like a hassle now. Not to mention I'll be showing a loss if I report this, which will increase chances of an audit.

[bridgesro]

Equipment with less than a useful life of 1 year cannot be capitalized, I.e., put on a depreciation schedule. Historically speaking, if you see only 8 profitable months use out of an ASIC miner then it's less than 1 year and the equipment cost is a one-time expense. In my operation I'm planning to sell equipment in under a year, so nothing I have is suitable or possible to put on a depreciation schedule. This outlook may change if BTC significantly appreciates in value. But I can also see enough complexity with this crap to just resign from mining all together, seems like a hassle now. Not to mention I'll be showing a loss if I report this, which will increase chances of an audit.

You can't depreciate the ASICs, but you could probably §179 them.