IRS Releases Tax Rules on BTC

[amspir]

Second issue is related a bit to above... Equipment costs. Nobody mining at current difficulty is producing anything significant enough to report unless they bought some gear. So we've got equipment costs, electricity, losses on equipment sales, etc. I started mining in early November, have been pretty smart about it, but I honestly think I'm showing a net loss when I run all the numbers. I bought a lot of equipment with mining revenues, so there's more expenses. I mean, am I really gonna report all this shit and have it show a loss? I'm not a tax guy, and I'm not starting an LLC, so how or why exactly would I report a bunch of activity from an unprofitable hobby? I mean, taxes are applied to profits, not revenues, and none of this gear can be depreciated because the useful life is under 1 year. I'm just not seeing it, can anyone clear me up?

Sounds to me like this guidance was designed with the big guy miners in mind, I.e., corporate mining operations.

You need a tax accountant if you don't understand the process, but basically your expenses that are not equipment (electricity, internet) are deducted from your gross business income.  If it is shared with your residence, there's IRS rules that determine how much you can deduct.   The equipment is on a depreciated schedule, you deduct a portion of what you paid for it from your gross income each year until the equipment is sold or retired.  This will all go on a schedule C, which is filed with your tax return.

[sergio]

This is bad, they are not recognizing bitcoin as being a currency, they are requiring everyone to do some bookkeeping nightmare, if you do not think  it is a bookkeeping nightmare, think of it this way replace the policy for Bitcoin and apply it to the dollar, could you accurately track each dollar gained and spent retroactively for a few years and make that balance your income with an accuracy of 100%. Most likely not, most of us could not, we simply do not do any bookkeeping when going to a restaurant, getting a haircut, paying the bus, putting fuel on car, buying coffee, and so on,  it is simply not done, and most people do not do it weather it is the dollar, euro, or some other currency why should it be different for digital currencies.

if the dollars devalues and it is inflated, we are expected to report that as a gain, it makes no sense, do you report such gain with gold? most likely not since it is the dollar being devalued, loosing its purchasing power it is really not a gain if you use a superior currency which is not based on debt and it is anti inflation.

It looks like the IRS wants us to pay the inflation tax to protect the dollar, that can not be good.

One of the qualities of Bitcoin is that it allows the average person to buy an expensive house without getting into debt, that is not possible with the dollar since as the dollars are being saved they are being devalued due to the inflation tax.
With this ruling it will make it impossible to save for a house or retirement with Bitcoin, your savings will go to the IRS instead of the house, for retirement the same thing the IRS will get to enjoy the money, and when you are old you will get screwed since the IRS will have all your money and not you.

You  should not have to pay tax if you do not touch the dollar with Bitcoins, Bitcoins should be treated the same as the dollar, you do not pay extra taxes on the dollar if it appreciates in value vs gold for a given year, or vs Bitcoin, why should bitcoin pay extra taxes if the dollar does not.

This ruling sucks. good luck having your retirement in Bitcoin.

Lets treat bitcoin in the spirit of Satoshi, and all  this nonsense can be ignored.

The only good think about this ruling, now I can claim I own property even though it is on the cloud, soon they will want to tax the cloud, air, and other things that today are not being taxed.

In the near future when the pollution is huge due to government policies you will have the air tax,  breathing clean air will be a taxable privilege, and tax advocates will claim if you do not want to pay the air tax then do not breath clean air. when in fact air was originally tax free and clean, and due to government policies it got polluted, and then the air tax will come along.

Talking about an air tax may sound funny but it could be a sad reality in the near future, just a few years ago no one though the IRS would tax a  number based on 0 and 1, and now a number that represent money can be taxed, even though officially it is property does that mean numbers have ownership? it is a bunch of nonsense to get money which shows the dollar is not doing well against bitcoin.

Why should we help the banking industry, by making bitcoin subject to rules which the dollar is not.

well thats my opinion, once again I will say regulation is bad, freedom is good.



 

[J_Dubbs]

I'm not a tax guy, and I'm not starting an LLC, so how or why exactly would I report a bunch of activity from an unprofitable hobby? I mean, taxes are applied to profits, not revenues, and none of this gear can be depreciated because the useful life is under 1 year. I'm just not seeing it, can anyone clear me up?

Schedule C (if run as a business) or Schedule A (if a hobby).  If you don't understand the difference or don't know what to do, which seems to be the case from your question, get good advice.

Yeah boy! I like the boss.

I emailed a CPA on Saturday for tax help, worked with him in the past, mentioned Bitcoin, crickets chirp... Radio silence.

400gh/s here, my understanding is that because I didn't enter into this strictly for profit that it is a hobby. I read up on the distinction a few weeks ago, in the end all signs pointed to hobby. Thanks for the helpful response!

[J_Dubbs]

Second issue is related a bit to above... Equipment costs. Nobody mining at current difficulty is producing anything significant enough to report unless they bought some gear. So we've got equipment costs, electricity, losses on equipment sales, etc. I started mining in early November, have been pretty smart about it, but I honestly think I'm showing a net loss when I run all the numbers. I bought a lot of equipment with mining revenues, so there's more expenses. I mean, am I really gonna report all this shit and have it show a loss? I'm not a tax guy, and I'm not starting an LLC, so how or why exactly would I report a bunch of activity from an unprofitable hobby? I mean, taxes are applied to profits, not revenues, and none of this gear can be depreciated because the useful life is under 1 year. I'm just not seeing it, can anyone clear me up?

Sounds to me like this guidance was designed with the big guy miners in mind, I.e., corporate mining operations.

You need a tax accountant if you don't understand the process, but basically your expenses that are not equipment (electricity, internet) are deducted from your gross business income.  If it is shared with your residence, there's IRS rules that determine how much you can deduct.   The equipment is on a depreciated schedule, you deduct a portion of what you paid for it from your gross income each year until the equipment is sold or retired.  This will all go on a schedule C, which is filed with your tax return.

Equipment costs aren't an expense?? Since when?

If it's not planned to serve a useful life of greater than 1 year it is not a capital expense and cannot be put on a depreciation schedule. A piece of gear being used for less than a year in the production of "goods/services" as far as I know is classified as an expense. This isn't a fucking dump truck, it's a block eruptor. Sounds to me like people that know nothing about mining dreamed this shit up, I'm seeing people trying to jam a grey area into black and white. Let me tell you, none of this gear will serve a useful purpose greater than 1 year.

[amspir]

Equipment costs aren't an expense?? Since when?

I didn't mean to imply that.  They are a capital investment, and the expense is deducted over several years.

For example, you buy a new oven for your bakery business.   Instead of deducting the entire expense of the oven for that year's tax return (and not showing a profit), the expense is deducted over several years and offset against each year's gross income.

[J_Dubbs]

Equipment costs aren't an expense?? Since when?

I didn't mean to imply that.  They are a capital investment, and the expense is deducted over several years.

For example, you buy a new oven for your bakery business.   Instead of deducting the entire expense of the oven for that year's tax return (and not showing a profit), the expense is deducted over several years and offset against each year's gross income.

YOU CANNOT DEPRECIATE THIS GEAR.read above.

None of this is like an oven, none of this gear is plugged in with a forecast of anything more than 8 months, max. ASIC equipment has a short lifespan and low salvage value, you cannot capitalize it. Do you mine at all?

[amspir]

YOU CANNOT DEPRECIATE THIS GEAR.read above.

None of this is like an oven, none of this gear is plugged in with a forecast of anything more than 8 months, max. ASIC equipment has a short lifespan and low salvage value, you cannot capitalize it. Do you mine at all?

Then there might be a ruling by the IRS to clarify.  The last time I filed a schedule C was as an independent computer consultant, and computer equipment was regarded as an asset that is depreciated.  I even had to pay a local business property tax on it.

If you buy then sell your equipment within the same tax year, then you might be able to make it an expense.  Consult a tax accountant.

[Peter R]

This is bad...

It seems you are most opposed to the capital gains tax, correct?  Imagine that the IRS said instead that bitcoin would be free from capital gains tax.  Think of the outrage this would cause!  Stock, gold and bond investors would all be crying out for changes to the laws so that they too could avoid paying capital gains tax.  And once they succeeded in eliminating the capital gains tax, enterprising individuals would more easily find ways to structure their income to avoid paying any taxes at all.  

In my opinion, the ruling was correct in all respects except it should have distinguished between "hashers" and "miners."  "Hashers" are employees of the pool and this should be interpreted as income at the moment the coins awarded (as per the guidance).  "Miners" are independent explorers who may or may not find coins and should be taxed when exchanging their coins only.        


Bitcoin is working exactly as it should.  I'm surprised more people don't appreciate what is happening here.  

[sergio]

another reason this ruling makes no sense when it comes to mining.

when you purchased your mining rig if you paid either dollars or bitcoins chances are they were already taxed, since if you purchased bitcoins to buy the gear the purchased of bitcoins most likely was done with money already taxed.

And now with the difficulty increasing to extremely high levels, mining can be a loss, break even, or a  profit depending on many factors.
At the very least you should be given the change to recover the investment, investment which in many case is never recovered do to the many factors that are in the game.

I like to support the bitcoin network since it is not just about money, it is the financial revolution that is taking place, participating in a financial revolution has personal value, so even if mining costs a little bit, many of us would get audited if we continuously reported losses increasing our loses with an audit, the IRS could see this as fraud.

So if you operate a mining rig at a loss and report it to the IRS you could be subject to and audit leading to a fraud charge, the IRS is to collect money not give tax credits, they are evil, and having to account for every satoshi earned every 10 minutes is complete bullshit.

This law is also not enforceable, the bitcoins are on a public database in every part of the world, they will use this law to harass business that  work with bitcoins by making compliance extremely complicated.

Just as bitcoin is a financial revolution, we also need a tax revolution so that our financial revolution is not destroyed.

we need more anonymity, more decentralization, decentralized exchanges. put it this way if bitcoin was centralized it would have been killed early in 2013, like egold, and liberty reserve were killed.

It is not easy with bitcoin we are facing the big guys, but in the end I am sure we will win, we now need a tax revolution.

[J_Dubbs]

This is bad...

It seems you are most opposed to the capital gains tax, correct?  Imagine that the IRS said instead that bitcoin would be free from capital gains tax.  Think of the outrage this would cause!  Stock, gold and bond investors would all be crying out for changes to the laws so that they too could avoid paying capital gains tax.  And once they succeeded in eliminating the capital gains tax, enterprising individuals would more easily find ways to structure their income to avoid paying any taxes at all.  

In my opinion, the ruling was correct in all respects except it should have distinguished between "hashers" and "miners."  "Hashers" are employees of the pool and this should be interpreted as income at the moment the coins awarded (as per the ruling).  "Miners" are independent explorers who may or may not find coins and should be taxed when exchanging their coins only.        


Bitcoin is working exactly as it should.  I'm surprised more people don't appreciate what is happening here.  

I'm mining with under 500gh/s in a pool, have a read through my post as to why this is confusing and not really a good thing. Pretty sure people here don't think I've been around the block, won't get into my finance experience but I'd say I kinda know my shit, and generally for a small mining setup in an apartment this is somewhat of a confusing set of guidance. A lot of it makes sense, but not for the hobby mining crowd working with pools. You mentioned it in your post, but I need to emphasize it, a distinction should be made for "hashers" versus "miners".

[LostDutchman]

People, I done been to two County Fairs and a goat ropin' and I assure you that about half of you are screwed, blued and tattooed; you will be done.

Finis.

Das Endung.

The End.

My $.02.

[J_Dubbs]

So if you operate a mining rig at a loss and report it to the IRS you could be subject to and audit leading to a fraud charge, the IRS is to collect money not give tax credits, they are evil, and having to account for every satoshi earned every 10 minutes is complete bullshit.

This, well said.

Combine this with the less than 1 year life on equipment, it cannot be capitalized, hence cannot be depreciated, and anyone mining with ASIC gear (right now) WILL (probably) show a loss, and thus flagged for an audit. Or, anyone that tries to put their gear on a depreciation schedule will be overpaying massive amounts. I have equipment THREE MONTHS OLD that was bought for an average cost over $600 and now have fair value of under $150, 3 months!! How can you show a profit to the IRS with those numbers? I could flip equipment tomorrow, exchange all my BTC for USD and show a huge loss for 2014 like that. Even standing still and not selling gear I can show a loss on paper, all I see is an audit flag coming out of this.

[LostDutchman]

So if you operate a mining rig at a loss and report it to the IRS you could be subject to and audit leading to a fraud charge, the IRS is to collect money not give tax credits, they are evil, and having to account for every satoshi earned every 10 minutes is complete bullshit.

This, well said.

Combine this with the less than 1 year life on equipment, it cannot be capitalized, hence cannot be depreciated, and anyone mining with ASIC gear (right now) WILL (probably) show a loss, and thus flagged for an audit. Or, anyone that tries to put their gear on a depreciation schedule will be overpaying massive amounts. I have equipment THREE MONTHS OLD that was bought for an average cost over $600 and now have fair value of under $150, 3 months!! How can you show a profit to the IRS with those numbers? I could flip equipment tomorrow, exchange all my BTC for USD and show a huge loss for 2014 like that. Even standing still and not selling gear I can show a loss on paper, all I see is an audit flag coming out of this.

Just about that.

My $.02.

[sergio]

In reply to Peter,
No I am not against the capital gains tax, I am against the double taxing and to paying the inflation tax, and to have different set of rules for bitcoin that do not apply  to the dollar.

For example you purchase a book with dollars you pay sales tax.
For example you purchase a book with bitcoins you pay sales tax and capital gains tax, and are required to do extra bookkeeping which is costly. that is what I am against why different rules than  the dollar.

why should we be expected to pay the inflation tax when bitcoin is not based on debt.

if you run a bitcoin business and make x profit in bitcoins, you should pay the capital gains tax on the x profit based on the bitcoins that were earned, but not on the value gained or lost against the dollar, since it is clearly the dollar it is inferior to bitcoin, the Feds should be responsible for improving the dollar to make it competitive against the bitcoin, not hurt bitcoin to level the playing field against the dollar.

A tax revolt is highly needed, and bitcoin is good for that.

[LostDutchman]

In reply to Peter,
No I am not against the capital gains tax, I am against the double taxing and to paying the inflation tax, and to have different set of rules for bitcoin that do not apply  to the dollar.

For example you purchase a book with dollars you pay sales tax.
For example you purchase a book with bitcoins you pay sales tax and capital gains tax, and are required to do extra bookkeeping which is costly. that is what I am against why different rules than  the dollar.

why should we be expected to pay the inflation tax when bitcoin is not based on debt.

if you run a bitcoin business and make x profit in bitcoins, you should pay the capital gains tax on the x profit based on the bitcoins that were earned, but not on the value gained or lost against the dollar, since it is clearly the dollar it is inferior to bitcoin, the Feds should be responsible for improving the dollar to make it competitive against the bitcoin, not hurt bitcoin to level the playing field against the dollar.

A tax revolt is highly needed, and bitcoin is good for that.

Bitcoin and the Whiskey Rebellion.

right

My $.02.

[J_Dubbs]

Maybe we all need to take a deep breath... Slush's pool isn't exactly Morgan Stanley. Not expecting a 1099DIV, just sayin.

[FeedbackLoop]

Maybe we all need to take a deep breath... Slush's pool isn't exactly Morgan Stanley. Not expecting a 1099DIV, just sayin.

Slush is also not in the US (even if you are).

[smooth]

"Hashers" are employees of the pool

Vendors (of a service) or contractors, not employees (no supervision or control by the pool over the hasher, etc.). In other respects I agree with you.

[J_Dubbs]

If we can incorporate in Bermuda like many big corps we could avoid much of this...

[LostDutchman]

Maybe we all need to take a deep breath... Slush's pool isn't exactly Morgan Stanley. Not expecting a 1099DIV, just sayin.

Slush is also not in the US (even if you are).

If you are in the USA, you will be paid in the USA and Slush is going to have to comply with US laws regarding payment of any kind.

Not my opinion; fact.

My $.02.