Bitcoin miner in the USA: how I'm avoiding taxes

[Big Time Coin]

This post is not intended to give legal, accounting or financial advice - it is to document my own efforts vis-a-vis taxation to promote a discussion of the issues to benefit my understanding of these issues. 

Yeah so I have some mining income from my ASIC bitcoin farm, a portion of which is pictured here:



Uploaded with ImageShack.us

And I saw a lot of misinformation posted here.  I also got some misinformation from my own accountant on a couple separate occasions, but hey I'm still going to use him because these are complicated issues, and he isn't charging me for research time anyway.

So for mining my big costs are:

Electricity
Rent
Property Improvements
Mining equipment - purchase and repair/maintenance costs
Other industrial equipment
Wages
Time

FIRST THE #1 Thing about bitcoin mining for tax purposes AFAIK - When I sell the coins, and I get the dollars into my bank account, that is the amount of business income I have.  I count expenses against that income, income - expenses = taxable income.  I can also purchase bitcoins, then later sell those bitcoins at a profit or loss.  If I held the bitcoins longer than 1 year then it is treated as a capital gain.  I can sell the coins, pay the tax as income, then rebuy the coins later and keep track of my basis at the rebuy price, but I can't try to play monkey business and count "mining expenses" as my basis to try to get the capital gains rate.  And that's just fine, because I am going to be way better off treating it as income, and here is why:

Equipment - SECTION 179 and separate shipping and handling costs

Allows up to $500,000 of equipment and computer purchases to be "expensed" immediately.  See normally I would have to wait over 5 years to depreciate my asic mining farm, which cost me about.... oh let's say $200k to $500k - I haven't actually run the numbers yet.  But NOT THIS YEAR because of some taxpayer relief act or stimulus act or some such small business promoting thing.  #ThanksObama
This includes the racks, fans, all equipment I need to run the mining farm.  Oh yeah and I get to claim the shipping cost of the equipment separately as a postage & handling / equipment transport, delivery expense.

Electricity - All expensed 1) rented locations used only for bitcoin mining - 100% of electricity cost expensed. 2) portion of own home used for bitcoin mining - % of electricity attributable to bitcoin mining expensed

Property improvements 1) money paid to electrician for parts and labor to upgrade power delivery system on rented property = leasehold improvement, 100% expensed, 2) at home, add cost to basis of home OR if I wanted to get really paperwork intensive rent the space in the home used by the bitcoin mining business from myself and try to claim leasehold improvement - I am not that tricky, not going to mess with it

Wages - I use a pass-through entity so I don't need to account for wages paid to myself, but if using a non-pass-through entity have fun wrestling with the extra paperwork, no thanks. 

Time - CRITICAL - I spend 500 hours + this year working on my mining farm.  It is NOT easy to set up, monitor, and run one of these farms, it is constant work, trust me.  I spend 500+ hours annually also because that qualifies my bitcoin mining income as ACTIVE INCOME, against which I can claim expenses.

So yeah that's the short story, I can sell off about $200-$500k of bitcoins to cover expenses before the income taxes on profit start applying.  Much better than trying to claim capital gains.  I will wait until bitcoins hit $10,000 - $40,0000 before it's worth it to sell the ones with a basis of $5 each

[1713581213]

1713581213

[hanwong]

you are not avoiding taxes. you are paying all the taxes which you are due to pay, which in your scenario will be $0. Congratulations! You are doing it the right way.
See paying little to no taxes isn't that hard. You have a good accountant, you have good records, you have realistic expectations, and you treat taxes as another cost of doing business. You my friend are a great tax client. I wish you were my client. Your accountant should give you a big fat hug for being a good client. Without giving any specific tax advice, your scenario looks to be on point. You can sleep well at night. <<<------this comment was for informational and entertainment purposes only. No tax advice was given.

[nicwenzel]

Lol you a tax cow. how does it feel to be milked? fine for you, im sure, because They make people like you OK with it by buying you out with goodies, giving you enough so you can be happy but never truely free. Deep Onion, Monero, Zcash, Spectre,are all privacy coins that make it impossible for anyone to track the sale or transfer of coins with some
clever programing. This is the future of "illegal activities" and privacy coins will bring down the fed.

You cant tax a coin if you cant see who has it.

[Larsius]

But I can't have 12 Ferrari's and 10 Lambo's neither Someone will ask me how I got those.
I would pay taxes if they legalize the crypto.

[audaciousbeing]

From your explanation, I can say that what you did is not tax avoidance its just a form of capturing all of your which you have not even done perfectly based on what you have there. Because as a 'director' in your firm, and have worked for 500 hours, you need to bring in the cost of your labour as part of the expenses which should be taken care of because if you are working in another firm, you would sure be paid your wage so the firm is owning you such payment and your accountant if he is savvy should have advised you as such as that would further reduce your net income and more money to you. All you will need to pay would be withholding tax ( if applicable on such payment).

You are also not sure of avoiding tax because avoidance of tax would be reducing your tax liability by studying the tax laws which you are yet to do and that is considering the amount you will pay as tax if you keep beyond one year. All of those expenses you incur would be allowed for deduction from the capital gains as well as any cost you would likely incur to carry out the purchases as they are incidental to such activity. Its when you calculate the effective tax rate of both options that you know which one would make you pay less tax without committing any offence.

[pereira4]

But I can't have 12 Ferrari's and 10 Lambo's neither Someone will ask me how I got those.
I would pay taxes if they legalize the crypto.

This. What's the point of having millions if you can't enjoy it? The point of having a lot of money is having a great quality of life. You can't buy a nice house if you can't explain where the money came from.

Taxes cannot be avoided unless you want to have millions worth of bitcoin which you can only spend on irrelevant things, and I don't see the point.

This is why you must keep track of everything and save as much information as possible about how you got your bitcoins.

[Tai Chi Chain]

Round of an applause for this gentleman everyone!

This is how things should be done, legal & tax free.