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Author Topic: How to treat Bitcoin mining income for tax purposes?  (Read 16775 times)
Boussac
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January 29, 2012, 09:48:49 PM
 #41

I posted in this thread which is more general (not focusing only on mining income): https://bitcointalk.org/index.php?topic=54645.20
It seems that in Europe, bitcoins earned thru mining coud be subject to an 8% tax on the amount sold (if and when they are sold for euros or dollars).
That's assuming bitcoins are treated as a digital commodity (like say prime numbers) similar to gold because of their limited supply (unlike prime numbers).
Bitcoins cannot be treated as securities imho because there is no identifiable issuer.

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February 09, 2012, 03:59:42 AM
 #42

You have obviously thought about this and have reached a defendable position. I do not disagree with your decision; in fact, it is refreshing to see people who have put serious thought into the issues and reached their own conclusions, whatever they may be!

If there is one thing this discussion makes clear, is that there are many ways of interpreting the same bitcoin concepts.

There are actually a multiple legally defenseable positions that can be taken. Perhaps you should consider picking up a copy of A Lawyer's Take On BitCoins and Taxes; a 34 page report with about 60 legal footnotes by a CA attorney. It will at least give you a good overview of the legal landscape in this area.

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February 19, 2012, 08:25:41 AM
 #43

the joint, any news from your accountant? I am curious about her having talked to the IRS about Bitcoin.
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February 19, 2012, 08:28:28 AM
 #44

the joint, any news from your accountant? I am curious about her having talked to the IRS about Bitcoin.

Haven't heard a thing.

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March 02, 2013, 01:24:41 AM
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the joint, any news from your accountant? I am curious about her having talked to the IRS about Bitcoin.

Haven't heard a thing.

I talked to my CPA today. He doesn't really know what to think. He is leaning towards business income/self employment income. (USA)

I don't like that at all. I was hoping for either rental income (The pools pay to rent my equipment) or short term capital gains (I'd prefer long term of course but I sell way too soon for that).

He said that if I could come up with a good way of describing using a pool as them renting my equipment then I could at least get away with rental equipment income and therefore not have to pay Social Security and Medicaid on top of income tax)

Thought? Comments?
malevolent
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March 02, 2013, 01:33:55 AM
 #46

the joint, any news from your accountant? I am curious about her having talked to the IRS about Bitcoin.
Haven't heard a thing.
I talked to my CPA today. He doesn't really know what to think. He is leaning towards business income/self employment income. (USA)

I don't like that at all. I was hoping for either rental income (The pools pay to rent my equipment) or short term capital gains (I'd prefer long term of course but I sell way too soon for that).

He said that if I could come up with a good way of describing using a pool as them renting my equipment then I could at least get away with rental equipment income and therefore not have to pay Social Security and Medicaid on top of income tax)

Thought? Comments?

I am not from US, but wouldn't you need some kind agreement or a contract with the pool operator? If you use a US pool and he is willing to spend some time to sign such an agreement (it would be preferable if were a big miner maybe?) then perhaps someone it should work? The pool pays you in BTC (not sure about the block transaction fees in your pool) for processing shares and securing the Bitcoin network (contributing to the security of the network?) - but retains a fee for to cover operational costs (if applicable).
alternatively, you can find someone who would like to rent equipment from you for mining (remember how GPUMAX worked?)

If you do manage to solve this problem let us know so others (in US) may use the info.
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March 05, 2013, 07:15:14 AM
 #47

for me bitcoin is a hobby. in Australia you can earn $50000. from a hobby before you need to declare it on your tax return. hobby's are non taxable earning.
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March 05, 2013, 07:30:39 AM
 #48

for me bitcoin is a hobby. in Australia you can earn $50000. from a hobby before you need to declare it on your tax return. hobby's are non taxable earning.
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$50k  !!!   WOW  Every business I have I would consider a hobby if  were in Australia.
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April 26, 2014, 12:09:23 AM
 #49

In the Notice from March 25, 2015, the IRS issued some pretty specific answers to FAQ on mining virtual currency:

Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?

A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.

Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities?

A-9: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self- employment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on self- employment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.

You can read additional answers here:
IRS Notice 2014-21

bitTax.com
ChainGang
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September 14, 2017, 06:02:22 AM
 #50

We do not have a definitive answer in the US and we won't have one for a while. The catalyst that is causing all of the confusion around taxation is that we do not have a definitive answer on how to classify the cryptocurrency or how to regulate it. The reality is that we are almost running on an honor system at the moment. In order to regulate the coins, every transaction would need to be reported to the government. Similar to PayPal reporting all the income that goes through your PayPal account. However, the basis for the currency is decentralization. The only way the government would be aware of any income generated is when you sell or convert the coin, unless they target you specifically for some reason. IE you buy a large home all cash and reported that you made minimum wage last year.

I own a few other business's and would recommend that you pay something and report something. The IRS is forgiving in this situation if any issues were to arise. What they are not willing to forgive is when you try to not pay any taxes.

I do not pay taxes on any coins that I hold because the coins are traded on markets and the US government does not consider it to be a currency. I am holding on to it for an investment like any other commodity and it is not generating US dollars until it is sold. At that point a loss or gain can be calculated. Coins are valued in comparison to currency. We recognize the value of the coin based on it's value in our perspective currency the same as we recognize 1 share of GE stock to be valued at $33.

Regarding income that I pay taxes on: I pay myself a set amount each month as a salary for compensation and to cover my business expenses. The coins I sell to cover my salary and expenses generates US dollars that I deposit into my bank account. This is the gross income for the year. The taxable amount used is the gross minus the deductions. The US has generous deductions for business owners. A home office is a deduction, a cell phone is a deduction, internet access, electricity, car payments, the computer I am using right now, and the list goes on. Anything that is needed to run the business is an expense and a deduction.

Many of the questions regarding deductions and how to get the best tax rate or the most beneficial deductions would not apply to any of us. We are running a business. You do set up a corporation, LLC, sole propritorship, ect.  However, we are not considered a "true company" in  the eyes of the IRS until we have three employees. If you have less than 3 employees you are simply considered self employed under the IRS. The good news is that you still receive the benefit of tax deductions associated with operating a company.

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