[IRS] If Bitcoin is property, then the IRS may have a BIG problem!

[RodeoX]

I think that's good advice IrishFootball.

You may be able to claim part of your computer as an expense, but it could be way more trouble than it's worth. I used to do some consulting work from home and counted one room as an office. I stopped trying to calculate the percent of my mortgage and the cost to heat to that room.  It came out to such a small amount that it was not worth my time. It may also make an audit more likely.  

[IrishFutbol]

Depends on what you're using as hardware.

If you have a mining machine that is solely used for mining and absolutely nothing else, then you can easily deduct the depreciation of the machine and the electricity the machine uses (a reasonable recalculation should work for cost of electricity).  However, if you have a personal computer that you sometimes use to mine, and sometimes use to go online / watch movies / etc., you're not going to be able to deduct anything for this.

The IRS has been making a big push recently targeting business items that have personal use, which is why I'd advise against anyone trying to deduct the cost of their main computer as a bitcoin expense.

Thanks this helps.  MOST hardware is mining-specific, but I do have some hardware I will have to think about.  Do you know if there is any kind of % test of time that can be applied to determine if it's deductible, or even partially so, or is it basically that ANY personal use would exclude it?  My kids logging in for a few minutes to check on homework a couple times a week on a machine that continues to mine basically 100% of the time is one example.

Not trying to split hairs, so hopefully it doesn't come across that way.  I appreciate your feedback.

I'm not entirely certain, but I believe it's mainly used for business, you can deduct the percentage that's used for business.  So if you know you spent 95% of the time mining BTC, and 5% of the time was your kids looking up homework, just deduct 95% of the cost of the computer.

I would highly recommend getting someone else to double check this though if it's going to be a major deduction.

[amspir]

I saw my accountant long ago and discussed Bitcoin at length, and our assumptions based on existing law were pretty much exactly in line with this IRS guidance.  

Can you explain to me the logic behind the taxable event of block creation by miners? AFAIK, entities that mine physical gold don't have a taxable event when they pull it from the ground, do they? Isn't the taxable event when they sell the gold?

The ruling is favorable to bitcoin miners, because you pay regular income rates (typically 30%) on bitcoin at the time it is mined, then capital gains tax (18%) on gains made while holding it.  A gold miner has to pay regular rates on net income made by when it is sold. I agree with you it seems very similar, but the IRS is treating bitcoin miners better than gold miners, assuming an overall rising rate in btc and gold prices.

I can guess it has something to do with determining the point at which the gold is a refined product ready for trade.  With bitcoin, it is ready after 100 confirmations on the block chain after being mined.

[the joint]

Here are a few thoughts of mine, though I'm not well versed on tax code laws:

1)  The ruling seems to imply that fair market value should be calculated for *every* BTC transaction, including rewards distributed per share at PPS pools.  Can you imagine calculating FMV and tracking gains for, literally, tens of millions of transactions?  Or, do you only track the FMV of withdrawals made from your pool account to a personal wallet at the date and time they were received (since changes in account balances don't correspond with actual transactions)?

2)  Think of multipool miners who would also need to calculate the FMV of all reward transactions received for each of the bazillion coins that they mine per day.  Sounds fun.

3)  What happens when you buy BTC with BTC at a different price, such as when purchasing a physical bitcoin?

4)  What is FMV anyway?  Which exchange represents FMV in a decentralized market?  Can't I just say my buddy offered me $2 for a bitcoin and call that FMV?  Or is FMV simply whatever you paid at the time that you paid it?  If it is, then how do you calculate the FMV of mined coins at the time they're received?  Am I correct in assuming that it's likely best to just choose a reasonable method and consistently apply that method in tracking all transactions, and claim a good faith effort in case something goes wrong?

5)  The difficulty in tracking everything definitively applies as much to the IRS as it does to us, and it seems impossible that, given a good faith effort in reporting gains or losses, the IRS would be able to prove you owe otherwise.

[casascius]

No.  The IRS stated in their ruling that as soon as the BitCoin is mined, the miner owes taxes on: USD Value of BTC Received - Expenses to Mine.  And I'd advise people to be very very very careful about what they claim are expenses.

Would you mind elaborating on this further, or maybe Mike or someone else with this experience could?  I would think hardware costs and/or depreciation of that hardware as well as electrical would all be reasonable?  I have a follow-up with my accountant soon and would like to have as much information in this regard as possible.

Thanks in advance.

I would think this is the way you want it.  When you mine bitcoin there are significant expenses.  You want to be able to deduct those.  If mining expenses exceed revenue, that sounds more like a business loss, not a capital loss, and the business loss seems more valuable at tax time.  As I understand it, there are more restrictions to getting benefit from capital losses.

I'm not an accountant, but I would fully expect to be able to deduct electricity and hardware depreciation, seems like a no-brainer to me.  In ordinary (non-bitcoin) business, this is pretty routine.  Would be deducting some internet costs as well.

[amspir]

5)  The difficulty in tracking everything definitively applies as much to the IRS as it does to us, and it seems impossible that, given a good faith effort in reporting gains or losses, the IRS would be able to prove you owe otherwise.

Tax court is different from criminal court.  Essentially, it is a civil action (like being sued) and innocent until proven guilty doesn't apply.  It becomes criminal when you don't follow the tax court's order, and all they have to do is prove you didn't comply with the order.

[casascius]

I think that's good advice IrishFootball.

You may be able to claim part of your computer as an expense, but it could be way more trouble than it's worth. I used to do some consulting work from home and counted one room as an office. I stopped trying to calculate the percent of my mortgage and the cost to heat to that room.  It came out to such a small amount that it was not worth my time. It may also make an audit more likely.  

And as I understand it, mortgage is not a deductible expense anyway.  It's not even an expense related to business in the least - it's you paying later for a house you already bought a long time ago.  

[crocko]

I found something: https://www.youtube.com/watch?v=fvqkQvOWgeo

[greenlion]

What kind of depreciation schedule would fly for an ASIC miner?

The standard 5 year for computer equipment is absolutely insane. Most of these units become useless as bricks within a year even if that.

[jerseyman]

The IRS has gotten it all wrong. All their statement will do is push onshore people to offshore services and companies where they cannot be taxed. I live and work in an offshore country where there are no capital gains taxes and cryptos aren't taxed in any shape or form. I'm already seeing a rise in what can best be described as "offshore crypto farms" where instead of you mining and manufacturing your own cryptos, you simply rent mining capacity or buy them cheaply. Either method means that you haven't technically manufactured them yourselves, rather you're buying a pre-manufactured product, which is tax exempt on purchase. Added to this, if the contract is written well, then the cryptos could be held in offshore "trust" wallets and only withdrawn as and when needed, thus obviating any reporting of them. You've simply paid for a service/product combination and the very existence of the mined cryptos isn't a taxable event. You could almost create a futures and options market that way, but that's another story...

Since the USA has introduced FATCA that is seeing US citizens and residents caught in a wider reporting/taxation net, the simple separation of an asset you own and enjoy overseas versus a product and service that you've bought and paid for could see cryptos becoming the "flee" asset of choice.

The upside of the statement is that the USA government has effectively rubber-stamped cryptos as viable and recognisable assets, hence they have a real value. Nothing like stimulating the very economy you're opposed to!

[sergio]

IRS's Ruling is an attack on Bitcoin

this is to the benefit of the bankers at the expense of bitcoin

Very true.
Not only that,  but it an attack on avoiding the inflation tax, which by design Bitcoin was designed to avoid.
So the IRS is not only saying you are not allowed to have a competing currency against the dollar, but you will have subsidize the dollar debasement done by the FED.

Not allowing competing currencies is illegal, since  it is something the constitution allows.

Also not only it is an attack on Bitcoin, but also on all alternative private currencies.

The good news it is a sign that we are winning the war, we may have lost a battle, but not the war.

I am a believer in freedom, and in the spirit of Bitcoin, and this law is unenforceable, even for people willing to comply it will be a bookkeeping nightmare, so I believe the law will be enforce on large business dealing with Bitcoins, therefore severely hurting the Bitcoin economy.

You should ask yourself why are they afraid of letting Bitcoin and the dollar compete on a level playing field, with same laws applying to each currency instead of discriminating against Bitcoiners. Is it because the dollar will depreciate in value and Bitcoin will appreciate in value over the years.


  

[greenlion]

You should ask yourself why are they afraid of letting Bitcoin and the dollar compete on a level playing field, with same laws applying to each currency instead of discriminating against Bitcoiners. Is it because the dollar will depreciate in value and Bitcoin will appreciate in value over the years.

How come I don't get to declare losses on my dollars due to inflation?

[J_Dubbs]

Depends on what you're using as hardware.

If you have a mining machine that is solely used for mining and absolutely nothing else, then you can easily deduct the depreciation of the machine and the electricity the machine uses (a reasonable recalculation should work for cost of electricity).  However, if you have a personal computer that you sometimes use to mine, and sometimes use to go online / watch movies / etc., you're not going to be able to deduct anything for this.

The IRS has been making a big push recently targeting business items that have personal use, which is why I'd advise against anyone trying to deduct the cost of their main computer as a bitcoin expense.

NO!

Bad advice. You cannot setup a depreciation schedule (I.e., capitalize equipment) because the useful life is less than 1 year. This may vary depending on your outlook, but it am firm that nothing in my rig is intended for use greater than 8 months and the salvage value is also very low due to increasing difficulty. Appreciation in BTC may change this outlook over time, but you are supposed to establish depreciation schedules according to future expectation from historical knowledge, and everything I've seen shows this equipment will operate at a LOSS anything further out than 8 months. This is not a dump truck or an oven, it is an ASIC miner, and anyone mining BTC right now is using one. You cannot capitalize (depreciate) equipment that in intended for short-term (1 year or less) use. For equipment that serves a life of less than 1 year you record a 1-time expense for the cost of the mining gear. Many will do this wrong and overpay, those who do it correctly will show a net loss and have a higher audit risk. Awesome.

People that don't know enough about mining are giving bad advice all over the place. Stop with the depreciation schedule stuff, it's not suitable for mining activity with ASIC chips.

[AnonyMint]

On the recent IRS ruling that BTC is property subject to capital gains on disposal of coins, and that miners must additionally pay income tax on the value of the BTC when mined, someone thinks being outside the USA will help but they are sorely mistaken...

The IRS has gotten it all wrong. All their statement will do is push onshore people to offshore services and companies where they cannot be taxed. I live and work in an offshore country where there are no capital gains taxes and cryptos aren't taxed in any shape or form. I'm already seeing a rise in what can best be described as "offshore crypto farms"...

As a former Treasury official was purported to have said, "we will burn the fingers of the goldbugs up to their armpits". And he also said, "its our dollar and your problem".

http://armstrongeconomics.com/2014/03/24/the-real-conspiracy-the-imf-tax-agenda/

Obama is on board fully with the IMF agenda to raise taxes substantially French style. The IMF has been behind the scenes going to every former tax shelter and threatening them to turn over data. They have hit the Caribbean islands right down to Panama. Obama has laced the Ukrainian aid with the IMF Poison Pill. The IMF wants a shit load of money to tear apart the global economy in search of unpaid taxes. The Obama Administration has conspired with the IMF behind closed doors and entirely out of the Congress to pursue this secret agenda. They are on the path to destroy Western Civilization as we know it. This is no joke.

...thus we headed into a crazy period where the governments will try to fund the $150223 trillion global debt bubble [4] by hunting down all private capital (G20 announced a database for this today, NSA will contribute and note this is the bankster business model for them to own everything), then as Bitcoin is taken over top-down then the alternative coin with the above features will take over and become the surviving private sector. For this new virtual economy...

I hope you also understand that FATCHA will compel the nations of the banks in all nations to comply and remember the developing world is short the dollar due to massive bond issues in dollars to the ZIRP carry trade. The USA is still in control of the world as we go into this implosion 2016ish.

My understanding is FATCHA does not require us to declare assets we hold overseas which are not in an "account", i.e. Nestmann said we probably do not need to report bullion that we hold in our homes, yet we would need to report (even allocated) bullion in any overseas account.

Are Bitcoins a private asset or an account? And where do they reside in our possession or in the public ledger? And where does the public ledger reside?

The problem is that governments (IRS in particular) invariably interprets laws in the way that brings them the most income. So I think they can argue (in their Kangaroo rigged courts) that since the public ledger resides in at least one computer overseas, then it is reportable under FATCHA.

Okay so no big deal right? Just report it. Well what about all of you who did not report on time already and held an account that was ever worth more than $10,000? You are already liable for 5X the maximum value of the unreported account in penalties plus 5 years jail time.

And reporting marks us in the IRS computers as "potential tax avoiders". The chance of audit drastically increases.

This is one of those issues that caused me to think it just isn't worth investing in Bitcoin without 100% reliable anonymity.

I am eager for someone to refute my analysis on this.

Disclaimer: consult your own tax attorney, I am not providing tax advice, merely discussing this issue.

Regarding the illuminati fears... superstitious is the end of reason.

Those who confuse superstition with exquisitely researched facts have lost rationality.

For those who think there is no global conspiracy, you are apparently not aware of Anthony Sutton:

http://www.youtube.com/watch?v=xSVWXmZB1wc

See below on what the former IRS Commissioner told Aaron Russo when he was making the movie about there being no income tax law in the USA.

Martin Armstrong's position has been there is no proof of a global conspiracy, and he doesn't speculate. That is an acceptable position, except that he continues to assert there is no global conspiracy, which is thus speculation, since he doesn't have any proof to support that assertion. So I urge him to stop being disingenuous and appearing to be a tool of the elite towards a one world currency which he has proposed as a solution to this crisis.

As for proof of a global conspiracy, we got a big chunk of proof from Aaron Russo as follows.

https://bitcointalk.org/index.php?topic=279650.msg3497509#msg3497509

As a Treasury official said some decade ago about the time he also said, "we will burn the fingers of the goldbugs up to their armpits", it has always been the plan to go after the millionaires and steal back all their gains to the elite (skip to 36:35 min of the linked video) who run the fiat system. And Bitcoin is an amazingly great tracking tool to aid them in this coming global confiscation via taxation of the rich process. Note the elite super rich are always excluded from such gestapos.

Former (Jewish?) IRS Commissioner and the man who wrote much of the tax code law, said to (Jew) Aaron Russo (producer of Bette Midler, The Rose, Trading Places, etc) in Ashkenazi Jewish Yiddish language, "nothing will help you". Skip to the 37 min point in the linked video.

The elite know exactly what they are doing by launching Bitcoin via the fictitious anonymous identity "Satoshi".

Nick Rockefeller told Aaron Russo what the goal is.

P.S. The Ashkenazi Jews have a much higher average IQ of 117, and many elite are Ashkenazi Jews. The says nothing against all Jews however.

Also it is rather incredulous to discount the fact that all the transition to AML, KYC which is enabling this hunt for capital which Martin admits and writes about, was engineered starting with 9/11. And it pretty difficult to discount that 9/11 was not done by 16 guys on camels and was rather engineered by ... (much circumstantial evidence points to Dick Cheney as key cog in the wheel). They evidence that the buildings were not downed with airplanes is overwhelming, even 1000s of architects and engineers have signed a petition saying the government's story is implausible. And this terrorism false flag farce is being used to keep the world locked into a non-default increasing debt trajectory with a hunt for all capital. Precisely what is necessary to drive the world into a severe economic contagion which can usher in a one-world currency type result after destroying the nation-state concept.

I am not sure there is a global conspiracy. And it doesn't really affect my actions nor goals any way. So I don't really care. But I am skeptical of a guy (Armstrong) who says speaks against decentralized cryptocurrencies, speaks for a one-world currency solution (with national or regional currencies floating relative to it), and who speaks against the possibility of the global conspiracy without any proof.

Just because Armstrong is aware of manipulations at the lower-level echelon of the NY bankers club is not proof that the higher echelon doesn't exist. Logic 101 really.

Update: Armstrong writes today about the $2.3 trillion missing from Pentagon accounting and paperwork was conveniently destroyed at the Pentagon on 9/11.

[Stratobitz]

What kind of depreciation schedule would fly for an ASIC miner?

The standard 5 year for computer equipment is absolutely insane. Most of these units become useless as bricks within a year even if that.

If you incorporate you can depreciate 100% of the cost in the first year under section 179. The 2014 limit is 25,000... However that will likely be increased as it has for the last 3 years, to roughly 250k.

[prophetx]

i wonder what happens when you only mine coins that have no exchange at time of mining...  or what if the only exchange is some spreadsheet or rudimentary web site operated by some random person/group

are they expecting people to use these to estimate "profit"

seems a bit odd

[greenlion]

What kind of depreciation schedule would fly for an ASIC miner?

The standard 5 year for computer equipment is absolutely insane. Most of these units become useless as bricks within a year even if that.

If you incorporate you can depreciate 100% of the cost in the first year under section 179. The 2014 limit is 25,000... However that will likely be increased as it has for the last 3 years, to roughly 250k.

Do you have to actually incorporate in 2013 or can this be done retroactively?

[Stratobitz]

What kind of depreciation schedule would fly for an ASIC miner?

The standard 5 year for computer equipment is absolutely insane. Most of these units become useless as bricks within a year even if that.

If you incorporate you can depreciate 100% of the cost in the first year under section 179. The 2014 limit is 25,000... However that will likely be increased as it has for the last 3 years, to roughly 250k.

Do you have to actually incorporate in 2013 or can this be done retroactively?

Google Rev Proc 2013 30

You can't incorporate retroactively however you can elect for S retroactively.

[casascius]

Depends on what you're using as hardware.

If you have a mining machine that is solely used for mining and absolutely nothing else, then you can easily deduct the depreciation of the machine and the electricity the machine uses (a reasonable recalculation should work for cost of electricity).  However, if you have a personal computer that you sometimes use to mine, and sometimes use to go online / watch movies / etc., you're not going to be able to deduct anything for this.

The IRS has been making a big push recently targeting business items that have personal use, which is why I'd advise against anyone trying to deduct the cost of their main computer as a bitcoin expense.

NO!

Bad advice. You cannot ..... This is not a ..., it is an ASIC miner.... You cannot capitalize... Many will do this wrong .... Awesome.

People that don't know enough about ... are giving bad advice all over the place. Stop with the ..., it's not suitable for ....

Yikes!  If this is in fact good advice to be listened to, it would be heeded more if it came in a package that is more pleasant to consume.

Quite honestly, even my accountant admits that any advice related to bitcoin is at best guess at best, because bitcoin is so new and the tax/revenue agencies and accounting profession at large are still busy wrapping their heads around it (while they wonder, individually, if they too should buy in ).  No one knows the "one true" way to do this, and especially a non-professional (I assume if you're an accountant or similar, you'd say so).

[J_Dubbs]

Depends on what you're using as hardware.

If you have a mining machine that is solely used for mining and absolutely nothing else, then you can easily deduct the depreciation of the machine and the electricity the machine uses (a reasonable recalculation should work for cost of electricity).  However, if you have a personal computer that you sometimes use to mine, and sometimes use to go online / watch movies / etc., you're not going to be able to deduct anything for this.

The IRS has been making a big push recently targeting business items that have personal use, which is why I'd advise against anyone trying to deduct the cost of their main computer as a bitcoin expense.

NO!

Bad advice. You cannot ..... This is not a ..., it is an ASIC miner.... You cannot capitalize... Many will do this wrong .... Awesome.

People that don't know enough about ... are giving bad advice all over the place. Stop with the ..., it's not suitable for ....

Yikes!  If this is in fact good advice to be listened to, it would be heeded more if it came in a package that is more pleasant to consume.

Quite honestly, even my accountant admits that any advice related to bitcoin is at best guess at best, because bitcoin is so new and the tax/revenue agencies and accounting profession at large are still busy wrapping their heads around it (while they wonder, individually, if they too should buy in ).  No one knows the "one true" way to do this, and especially a non-professional (I assume if you're an accountant or similar, you'd say so).

I'm not an accountant or CPA, in fact I haven't worked in the financial industry for over 5 years, but I've dealt with plenty of bull. Details are here, as specific as I'll ever get, on my background: https://bitcointalk.org/index.php?topic=530299.msg5913035#msg5913035

I know what you mean, I think. I could be more polite, right? Well, the problem is it's very frustrating and damaging to see so much bad advice. I literally had someone compare this to owning a bakery and depreciating on an oven. Some guy who has never mined Bitcoin ever takes one accounting class and learns about depreciation and they think it applies to everything, very annoying to watch it spread and be recited as gospel. The very important rule with capitalizing equipment is that it MUST have a useful life beyond 1 year. Without getting into WHY depreciation is good for real businesses with that type of equipment we can just eliminate the static and just say "no". This ASIC gear, historically speaking, cannot be projected for a useful life beyond 1 year, and therefore it cannot be put on a depreciation schedule. Now, if someone wants to do that they can, but they will end up showing excessive profits that do not really exist. At this point someone would need to try to make a case FOR depreciating because the reasons why not to are so pronounced.

I'm meeting with a CPA tomorrow and should be able to get some feedback.