Mining Business - Sale of Earned Property

[geekcryptogal]

As you know, in the US, according to IRS notice last year, you are to declare cryptocurrency received for mining services as gross income, in US dollars, based on the fair market value at the time of receipt.

I've read that the sale of it is considered capital gains, where the cost basis is the fair market value of it, and if it sales for more than what you got at, then it is capital gains.  But, I am thinking this might not apply to capital received as a business:

I read on Intuit's site, if you receive gains from something you sell from within your business, then it isn't capital gains at all but actually considered revenue income and taxed same as income tax rate, and that the revenue income is subject to self employment taxes (after any expense deductions).

Is this true?  Do you treat it like inventory?

[1714937207]

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[1714937207]

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[MarkAz]

You really should check with a CPA, but on the mining side of things I believe it's considered ordinary income, it's only on the exchange that it's considered capital gains.  The most important thing is how you determine the value of mined income - you just need to be consistent with it, so if you pick the average value of the crypto on Poloniex or where-ever, then you need to continue using that from then on.

[geekcryptogal]

You really should check with a CPA, but on the mining side of things I believe it's considered ordinary income, it's only on the exchange that it's considered capital gains.  The most important thing is how you determine the value of mined income - you just need to be consistent with it, so if you pick the average value of the crypto on Poloniex or where-ever, then you need to continue using that from then on.

I get paid out once per day from Nicehash.  In the transaction log on Nicehash, it lists the payments made to your wallet.  The amount and date & time.  To determine the Fair Market Value for this transaction I just use CoinMarketCap.  I click on Bitcoin and then zoom in to the appropriate time/date (of the Nicehash transaction) to get the value.  I then paste this value into the FMV column in the ledger worksheet in excel.  This seems like a good way to determine it right?

[whoismoses]

...to declare cryptocurrency received for mining services as gross income, in US dollars, based on the fair market value at the time of receipt.

True. If you mine a coin and the price is $1.00 that is gross income. The question is if you are getting paid out 50-100 times a month, it gets really hard to track. What I do is recognize the income once a month at the same exact time / day every month. Basically on the 28th at 5PM (my timezone). Any coin I mined that between the previous date and this date I value at the market price from the same place every time. It is a pain, but easier than doing it 100 times a month.

I've read that the sale of it is considered capital gains, where the cost basis is the fair market value of it, and if it sales for more than what you got at, then it is capital gains.

I read on Intuit's site, if you receive gains from something you sell from within your business, then it isn't capital gains at all but actually considered revenue income and taxed same as income tax rate, and that the revenue income is subject to self employment taxes (after any expense deductions).

Cryto-assets are capital assets.

Long Term Asset = Held for 12 months or longer
Short Term Asset = Held for less than 12 months

I'm not 100% sure if this changed with the new US tax law but...

If you were in the bottom 2 brackets, you pay 0% capital gains on long term assets.

If you are in the top bracket, you pay 20% for long term capital gains.

If you are in the middle of those two, you pay 15% for long term capital gains.

Short-term capital gains are taxed at if they are income.

Some examples...

You mine $100 worth of coin and hold it for 13 months. Sell it for $150. You pay income tax in the year you mined it for $100. You pay capital gains on $50 when you sell it assuming you held it for 12+ months.

You buy 6 video cards for $400 each ($2400). You mine them for 13 months and then sell them for $500 each ($3000). You pay capital gains on $600.

You buy 6 video cards for $400 each ($2400). You immediately sell them on craigslist for $650 ($3900) [you jerk]. You pay income tax on $1500.