if you are supposed to pay tax on mining profit how about expenses?

[ggbtctalk000]

irs is eager to collect tax on mining profit which is understandable and fair as stock traders to pay a hefty sum. But how about loss and business expenses?
You buy a very expense gpu at 800$ and then you havent managed to cover your purchase cost at the end of year then you got taxed, can you use it as an business expense?

I am thinking to go sole proprietar on this one.

[cryptbro]

curious about this as well. going to see my tax guy on the 2nd. will report back.

[androstan1234]

^It's pretty cheap and can be done quickly through legalzoom, or you can take a little time to figure it out and diy.

[Elder III]

We are set up as a self employed home business, just like a small contractor/carpenter for example. You can itemize all of your equipment and typically would have it be depreciated over a number of years (3 years in our case). You need to keep meticulous records of every single purchase that is for your business as well as records of every sale of crypto. If you are strictly mining and transferring into $USD regularly it's fairly straight forward. If you are day trading as well it's a bigger pain in the rump.

*also don't forget to calculate your power bill since that's a direct deduction. If you don't have a separate electric bill I recommend having some type of metered connection, even if it's just a killawatt meter plugged in for each rig to show what your typical power consumption is. The IRS mainly wants to see that you are using due diligence and doing your best to keep detailed records and attempting to prove what you're claiming is the case for your expenses. They will be far more forgiving if they just disagree with your calculations rather then if they see you're making no attempt to keep records at all.

[Vann]

Bitcoin.tax can help you manage your trading gains and mining profits. It can import your trades directly from supported exchanges and calculate your tax liability.

https://bitcoin.tax

[TimBuck2]

They will be far more forgiving if they just disagree with your calculations rather then if they see you're making no attempt to keep records at all.

There is not one single thing about the I.R.S. that the words "forgiving" could aptly be used in the same sentence. You can have all the documentation in the world and send it to them registered mail, receive a signature receipt and it will find its way into the trash bin and you will still be responsible. They have no accountability to the taxpayer what so ever. They are simply there to receive a paycheck and could not give one rats ass about you on an individual basis.

Just my opinion .....

[ggbtctalk000]

They will be far more forgiving if they just disagree with your calculations rather then if they see you're making no attempt to keep records at all.

There is not one single thing about the I.R.S. that the words "forgiving" could aptly be used in the same sentence. You can have all the documentation in the world and send it to them registered mail, receive a signature receipt and it will find its way into the trash bin and you will still be responsible. They have no accountability to the taxpayer what so ever. They are simply there to receive a paycheck and could not give one rats ass about you on an individual basis.

Just my opinion .....

i agree, sort of.

[whoismoses]

Here is how I understand the situation, please anyone let me know if you disagree.

If you mine crypto and do not have an LLC or corporation what you mine is considered as personal income. You have at least the following taxes (in the US)...

1 - Federal Income Taxes
2 - State & Local Taxes
3 - Social Security Taxes (6.2% --> 12.4%)
4 - Medicare Taxes (1.45% --> 2.9%)

For #3 and #4, as this is personal income you have to basically pay 2x the tax as when you are not self employed your employer pays the other half. There is an upper limit on the social security portion of $128,400. Therefore, if you already make over $128,400 at your normal day to day job, you don't have to pay the social security tax at all. If you make less than that you have to pay 12.4% until you reach $128,400 of income. #4 is not impacted by an upper limit, you pay that on everything.

One of the questions is "what is revenue?" Technically the second you mine some crypto and it is recorded on the blockchain to your wallet you mined it. So technically this only really happens when the pool pays you (if you mine in a pool). I suggest that this is too burdensome to track. What I do is once a month on the 28th I look at what I have been paid by my pools and I take a snapshot of the current prices and I recognize the income for the whole month on that date.

If your only income is mining, I think you need to pay taxes quarterly. If you have another job, just do your taxes at the end of the year. Mining will just raise your taxable income.

Now expenses... Most expenses related to mining (let's ignore hardware costs for now) can be tax deductible and "reduce" your taxable income. For example, if you mine $10,000 worth of crypto but spent $2,000 on electricity. You count the $2,000 as expenses and your new taxable income is $8,000. Things that I believe are real expenses that you can deduct...

- Mining room space
- Electricity
- Mileage when driving to buy hardware
- Food you eat while driving to buy hardware
- Cooling costs (fans, other equipment)
- Misc. hardware like PDUs, wires

Now, lets talk about the hardware.

Let's say you spend $15,000 on hardware in 2018. You have two choices: 1 - "Expense" it all in a single year by reducing your taxable income in just 2018. 2 - Depreciate the hardware over time 2-3 years, this essentially reduces your taxable income each year for 3 years by 33.334% (on just the mining income assuming you do this over 3 years)

#1 is the easiest to manage, however if you are upside down... for example you spent $15,000 in 2018 but only made $10,000 and you expense it all in one year, you are loosing out on $5,000 worth of deductions because your income wasn't high enough. In this case I would depreciate over 2 years.

Ok, now lets talk about selling your crypto...

When you sell your crypto it is either going to be taxed as "Personal Income" or "Capital Gains". The ONLY thing that determines this is how long you held it. If you hold your crypto for more than 12 months and sell it, you will be taxed as capital gains. If less than 12 months it is taxed as personal income. In most cases capital gains tax is going to be less than personal income tax.

I won't tell you what your tax rates are as it depends on your income levels so you have to do that research.

[fthomas137]

Ok, don't mean to be cruel here but taxes are like balancing a check book. Track your receipts for expenses, including electricity, parts, etc. When you do your taxes, you will make notification of your extra income (personal or biz) and then record your expenses. Your expenses will be reflected against your profits and you technically will only pay taxes on left over profits. But here's the cool thing - well cool in regards to taxes, if you have more expenses initially than profits, you can take away from your personal income too.

Now, I'm not getting into amortization as that's a topic on it's own, but I normally expense computer pieces as a consumable and it's been fine so far.

Luck,

Frank

[philipma1957]

They will be far more forgiving if they just disagree with your calculations rather then if they see you're making no attempt to keep records at all.

There is not one single thing about the I.R.S. that the words "forgiving" could aptly be used in the same sentence. You can have all the documentation in the world and send it to them registered mail, receive a signature receipt and it will find its way into the trash bin and you will still be responsible. They have no accountability to the taxpayer what so ever. They are simply there to receive a paycheck and could not give one rats ass about you on an individual basis.

Just my opinion .....

look up 1203b  and the irs and you will see they have far more accountability then you can imagine.

Here is a simple lesson sending any important info via mail is meaningless all you proved is you sent an envelope asking for a signature.

My mom worked for them for 27 years and retired
My wife worked for them for 32 year and retired
I worked a year in collections when I got out of the NAVY and decided to go back to college I got an accounting degree instead.

In collections I opened 25 letters a day  certified signed for nice letter saying please use the check to pay my bill. ⅓ had no check

Most of the IRS issues are really a reflection of congress being based on 2 parties and each one pointing the finger at the other for our problems.

But check out congress vote on 1203b   450 to 1 or something like that.

[ggbtctalk000]

What gets me most is not the fact I have to pay tax or reasonable tax rate, it is complication and vagueness and time-consuming aspect of filing a crypto tax. For conventional income I finished my tax last few years within 1-2 hours of time using taxact software in which it does everything for me for flat fee of around 50-100$. Much faster and convenient, but for crypto, hell no!!

[dhouse]

every time i think about paying taxes for crypto i want to throw up. for mining i'm not so worried, but the fact that i'm going to be taxed on trading one coin for another makes me sick.

[Elder III]

Most of the IRS issues are really a reflection of congress being based on 2 parties and each one pointing the finger at the other for our problems.

I think that sentence sums up the majority of the problems with our government. :p

[ggbtctalk000]

every time i think about paying taxes for crypto i want to throw up. for mining i'm not so worried, but the fact that i'm going to be taxed on trading one coin for another makes me sick.

that is gross.

[hinvestmentgroup]

What gets me most is not the fact I have to pay tax or reasonable tax rate, it is complication and vagueness and time-consuming aspect of filing a crypto tax. For conventional income I finished my tax last few years within 1-2 hours of time using taxact software in which it does everything for me for flat fee of around 50-100$. Much faster and convenient, but for crypto, hell no!!

It's actually not too bad.  I've been using bitcoin.tax since the 2013 tax season.  I do pay the $29/year for premium, I think they just changed that and it was $19/year before.  I track my mining, trading, and spending there.  For mining, I think the trick is mining into specific mining wallets.  The site will then let you enter mining addresses and suck your mining income off the blockchain.  My mining wallets never have any inputs that are not mining income.  For trading, I simply import the trade history off various sites.  They have a slick page where you can pick your trading treatment, e.g. First In First Out, Average Cost, Last In First Out, etc.  Spending I usually enter manually as I don't usually do a ton of spending, usually on new miners.

[adaseb]

Is there is service out there that can help you if you mined ETH, sold for BTC right away and sold that BTC later for 5-10x gains.

Basically been doing it manually but wondering if there is an easier method.

[philipma1957]

Most of the IRS issues are really a reflection of congress being based on 2 parties and each one pointing the finger at the other for our problems.

I think that sentence sums up the majority of the problems with our government. :p

yeah people get fucked by a 450 head dictator  named congress.

no term limits  they just out wait the current president and go on their merry way.

[xxcsu]

How to handle cryptocurrency on your taxes

The IRS guidance on cryptocurrencies

[JaredKaragen]

I'm just gonna say two words and leave a little link.

Voluntary Compliance

This will only go to reinforce how corrupt our government is; and how twisted some people can make the actual definition of two words be 100% the opposite of its english definition.

*edit*  mind you there is no federal law or statute that requires you to pay a tax, or imposes a penalty for not paying said tax.   It's the tax code;  that does impose these things;  which the tax code itself is 100% not a federal law or statute.  It's a code of rules 100% in its own realm written by a private corporation.

[iTzShowTime]

Thanks for all the info great community bitcointalk is!