IRS Releases Tax Rules on BTC

[Relnarien]

I get the feeling that PoS coins will become more popular after this ruling.

[smooth]

I get the feeling that PoS coins will become more popular after this ruling.

Because... that changes what exactly?

You can avoid staking your coins for a while and accumulate coin days, for which you then get credit when you do stake. That is my understanding, which is granted a bit fuzzy on PoS coins (pun intended?).

[smooth]

I get the feeling that PoS coins will become more popular after this ruling.

Because... that changes what exactly?

You can avoid staking your coins for a while and accumulate coin days, for which you then get credit when you do stake. That is my understanding, which is granted a bit fuzzy on PoS coins (pun intended?).

Wouldn't that credit be seen as the same basic thing as mining payments or rewards in the eyes of the IRS?

Yes but you can wait as long as you want before you start "mining" (i.e. deferring the income).

[amspir]

Yes but you can wait as long as you want before you start "mining" (i.e. deferring the income).

Assuming a rising exchange rate, this would not be an advantage.   You would rather have the regular income taxed at the lowest possible value when you mine it, then pay a lower capital gains rate on the gains as it appreciates.

[cobra89y]

the good thing about this is you can claim all your miners as expenses. If you don't make ROI u get a tax break.

[dmarketer]

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

Major ruling - BTC is property, not currency.  Basically means if you mine it at $600/coin, and then buy a product that costs $1,200 down the road for 1 BTC, you owe taxes on that $600 gain.

As Bitcoin users have to track their transactions each time, so would it affect the personal transaction rate or not?

[Amph]

tracking miners? lol

how the fuck they can track a miner, it's impossible

i hope they are speaking about when converting in fiat, otherwise they are talking bullshit, you can't track shit in cryptoword, also btc is aiming for completly anonymity

[Biggen]

The bottom line is that they want cryptos to simply go away.  The IRS (U.S. Government) doesn't like cryptos.  The crooks at the banks don't like cryptos.  The politicians that accept political donations from these same banks don't like cryptos.  They are well aware that it will be nearly impossible for miners to keep up with the daily exchange rate of every single coin we mine.  With the threat of fines/penalties/prison time for not keeping up with all this paperwork, they are hoping that people will simply give up.

It's actually a pretty smart plan.  The public sees the government as embracing cryptos.  After all, they are telling us we can have our cryptos so long as the government gets it's fair share.  Seems pretty rational doesn't it?  However, the public has no idea the paperwork that would be required to actually fulfill that obligation.  The IRS is fully aware of this.

[J_Dubbs]

the good thing about this is you can claim all your miners as expenses. If you don't make ROI u get a tax break.

We've discussed this here quite a bit, not so sure it's a good thing. Do you want to show a loss to the IRS from Bitcoin activity? Could be a great reason to audit you...

[J_Dubbs]

I've pinged a CPA and talked to friend who has a father that is a semi-retired CPA, I'll share any new insights if conversations happen... Looking to get their take on the small mining hobby/reporting a loss thing.

Based on this: http://taxes.about.com/od/taxplanning/a/freelance_5.htm , I think regardless if you report a loss or nothing at all, it's probably best to keep records that are detailed enough to hold up if questioned. This would mean a detailed log of mining payouts, daily value, and all expenses. My position, for my own equipment (YMMV), is that none of it is suitable to be capitalized (I.e., put on a depreciation schedule) because the useful life is less than one year and the salvage value is almost worthless. This outlook is based on my historical experience trying to sell equipment after use of 4 months, in the current market I've got sellers offering $150 for equipment that cost me $600-$1000. Granted, I mined BTC with it over the past 4 months, but the equipment costs wash out any profits my payouts would show. Not to mention if I exchange my BTC for USD right now it would be a loss on most of my payouts as BTC has been in the tank a bit lately. Pretty sure nobody will chase me down this year for not reporting a huge loss, regardless I'll be putting together detailed records (already have most of this done) and I'll be chatting with a few people more knowledgeable about the tax side of this.

While I'm not a tax guy I know enough to be dangerous; over 14 years of trading equities & have done my own taxes for nearly a decade on it, worked in the finance industry for 5 years (series 7, etc), 2nd year MBA student, have worked extensively with CPAs and lawyers taking over and closing out a small corporation (not for a job with a boss telling me what to do, this was me working as president dealing with several other hostile parties and filing tax returns for years where prior president filed extensions. Caught them playing games trying to leave me as a bag-holder to sign off on filings with unpaid capital gains and high audit risk, recognized it and had my CPA file correctly and we paid up), settled out associated lawsuits & paid shareholders, and for whatever it's worth I breezed through my accounting class without studying much, and no it wasn't an easy class but rather due to my existing local knowledge. Not looking to post my resume, just trying to illustrate this isn't my first rodeo.

[aztecminer]

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.

it is considered computer hardware .. if you buy a video card you do not depreciate this. you write it off as computer hardware. asics are not pc's though, they are like video cards, they are hardware. you write them off the first year as an expense. u do not depreciate a video card ok. if you buy a pc you have a choice. you can depreciate it over several years or write it off in the first year you bought it.  i know this for a fact because i do have an LLC and i write off all computers i have built in the first year. and this advice came straight from more than one CPA that i hired to do my taxes. therefore folks .. write off your mining hardware for the price in usd that you paid for it. and writeoff all the power supplies, heatsinks, electric, internet, and office space you use for mining. go have lunch with your friend and talk about bitcoin and write that off too. bottomline get a business license and form an LLC. it might cost you hundred bucks to form an LLC however u can write those expenses off too. writeoff your tax consultant fees too. bottomline ... keep on mining biatches!!

[amspir]

tracking miners? lol

how the fuck they can track a miner, it's impossible

i hope they are speaking about when converting in fiat, otherwise they are talking bullshit, you can't track shit in cryptoword, also btc is aiming for completly anonymity

Here's the problem.  When you exchange your btc for fiat, a USA based exchange is going to report that you sold btc for cash if it exceeds $600 during the year.  If you use a USA based bank to receive incoming wires from a foreign exchange, they are going to know that.

If you don't file a tax return explaining the source of income, they can come after you demanding payment of tax for this income as if you were a cyber drug dealer.

If you are a miner, you would want to show that you mined the coins and you had expenses.  You would pay regular income tax on your net income from mining.  This is based on what the btc was worth when you received it.  If the price of btc goes up while you hold it, you would pay a lower capital gains tax on the profit from the gain.  The capital gains part is what the IRS ruling lets you do.

If you don't want to document your mining, then the IRS will tax your gross income at regular tax rates, as if you deposited all the money in the bank as unexplained cash.  If you wanted to lessen your tax liability, then you would document your mining so you could deduct your expenses and pay a lower tax rate on gains. Under US law, you have always been liable to pay taxes on your income from mining.

If you hypothetically wanted to cheat on your taxes, which I am not suggesting because it is against the law, a tax evader would find a way to convert btc to fiat or goods and services in such a way that it doesn't generate a report to the IRS.  As it is, anyone that takes more than $600 worth of btc from you in a year for cash or goods and services is required to report it to the IRS.

[bitcointaxes]

So, if I mined through 2013 at an average price of say $200/btc and put my coins on gox, then lost them with gox's closure when the price was ~$500 then...

I pay income tax on the $200/btc mined coins - my mining equipment and electricity expenses

Can I then claim property loss at the price when gox closed?

Dear IRS,

I have X coins stored on Mt Gox, and would love to pay my capital gains tax, but can't due to Mt Gox having all my records locked up.

Would you be so kind as to have a federal judge subpoena their records and let me know what I owe?

Bestest,

John Q. Public

The IRS rules are clear. It is your responsibility to keep records. If you don't, fail to report any taxes, and found out during an audit, you could face fraud or negligence charges with civil penalties.

I suggest you file for an extension and hope MtGox gives access in the next 6 months.

[J_Dubbs]

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.

it is considered computer hardware .. if you buy a video card you do not depreciate this. you write it off as computer hardware. asics are not pc's though, they are like video cards, they are hardware. you write them off the first year as an expense. u do not depreciate a video card ok. if you buy a pc you have a choice. you can depreciate it over several years or write it off in the first year you bought it.  i know this for a fact because i do have an LLC and i write off all computers i have built in the first year. and this advice came straight from more than one CPA that i hired to do my taxes. therefore folks .. write off your mining hardware for the price in usd that you paid for it. and writeoff all the power supplies, heatsinks, electric, internet, and office space you use for mining. go have lunch with your friend and talk about bitcoin and write that off too. bottomline get a business license and form an LLC. it might cost you hundred bucks to form an LLC however u can write those expenses off too. writeoff your tax consultant fees too. bottomline ... keep on mining biatches!!

Well said. But do you think it is in our best interest to actually do this for a small operation? I mean, to show a loss like this is pretty much a prime red-flag signal for an audit.

[amspir]

it is considered computer hardware .. if you buy a video card you do not depreciate this. you write it off as computer hardware. asics are not pc's though, they are like video cards, they are hardware. you write them off the first year as an expense. u do not depreciate a video card ok. if you buy a pc you have a choice. you can depreciate it over several years or write it off in the first year you bought it.

I'm not going to argue that, but a modern mining rig is like a small special purpose PC.  It connects to the network, is administered via a web interface and otherwise is not a peripheral to another PC. 

[J_Dubbs]

it is considered computer hardware .. if you buy a video card you do not depreciate this. you write it off as computer hardware. asics are not pc's though, they are like video cards, they are hardware. you write them off the first year as an expense. u do not depreciate a video card ok. if you buy a pc you have a choice. you can depreciate it over several years or write it off in the first year you bought it.

I'm not going to argue that, but a modern mining rig is like a small special purpose PC.  It connects to the network, is administered via a web interface and otherwise is not a peripheral to another PC.  

The useful life is not greater than 1 year, thus no matter how badly you WANT TO you cannot put it on a depreciation schedule. The only person capitalizing ASIC equipment is one that knows nothing about mining, at all. I'm guessing a lot of CPAs are going to mistakingly put ASIC equipment on a depreciation schedule, which is just completely stupid and it's because they know nothing about mining. From my experience the equipment pays for itself and then becomes worthless, this happens in 6 months. Now, if BTC doubles in value, whole different story, but it's far to speculative to predict. For accounting purposes, you use a reasonable conservative assumption when faced with uncertainty, and by that logic the ASIC gear on the market right now will operate at a loss in less than a year.

Again, for a solo operation I can see it being different, but I don't think anyone here is mining solo.

[Digi7ech]

Hmm, on the positive side.

All the BTC I've mined in December/January at that moment was worth $800+. Now it's worth $580 as of today. So using their statement of value at receipt, selling it would be a net loss today..


Also, for the people saying filing a loss is a red flag, yeah it can be, but most smart businesses do this. Just play it smart and know what you can and can't pull off. Then keep enough records to back up your story.

[LostDutchman]

Hmm, on the positive side.

All the BTC I've mined in December/January at that moment was worth $800+. Now it's worth $580 as of today. So using their statement of value at receipt, selling it would be a net loss today..


Also, for the people saying filing a loss is a red flag, yeah it can be, but most smart businesses do this. Just play it smart and know what you can and can't pull off. Then keep enough records to back up your story.

So, you'll have a story and you'll be stickin' to it?

LOL!

My $.02.

[J_Dubbs]

Hmm, on the positive side.

All the BTC I've mined in December/January at that moment was worth $800+. Now it's worth $580 as of today. So using their statement of value at receipt, selling it would be a net loss today..


Also, for the people saying filing a loss is a red flag, yeah it can be, but most smart businesses do this. Just play it smart and know what you can and can't pull off. Then keep enough records to back up your story.

So are you planning to report the loss? Sounds like it, just curious because people often say one thing and do another, especially when it comes to finances.

[Digi7ech]

I'm about to file an llc for a small automotive business I run.  I am planning to bring in the btc under it so I can write off expenses and keep it neat and away from my personal finances.

I'm expecting to show losses due to advertising and such with the auto side, so keeping some records for btc may not be much more work.

It still sucks, but we'll see.