Deducting electricity and or equipment costs from taxes?

[bitcoindaddy]

It's my understanding that I, as an individual can't deduct the cost of electricity or hardware costs from mining proceeds while doing my taxes. You have to start a company in order to deduct things like that or am I wrong?

[ribuck]

In most countries, if an expense is "necessarily incurred" to earn the income, it is deductible.

[bitcoindaddy]

I should have mentioned - I'm in the US.

[eleuthria]

You can deduct the hardware and electricity costs (pro-rated unless your rigs are on a separate line).  However, there are a few things to keep in mind before you start trying to deduct BitCoin related expenses:

1) You must report your BitCoin income in order to deduct expenses incurred.
2) You must be able to show a clear profit motive in order to deduct expenses in excess of revenues (ie: Show your expenses are for a BUSINESS not a HOBBY).
3) Equipment costs are not deducted outright, but depreciated.  You will likely be able to deduct your entire equipment cost through 179 or the Special Depreciation Allowances (federal only for special depreciation allowance) in the first year, assuming your adjusted gross income is positive.

It would all be deducted on a Form 1040 - Schedule C.  Depending on your state, it may be cheap to form a business (fictitious business name/registered with your city/county if required).  This will add validity in your argument that you are doing this as a business rather than a hobby.

[tomcollins]

I should have mentioned - I'm in the US.

You don't need to start a company.  If it's a legitimate business expense (I'm no tax attorney, so I won't get into whether it is or not), you can deduct some expenses.  But if you are using the machine for anything other than business, it's going to be harder.

For example, my wife is a massage therapist.  She uses 2 rooms in our house exclusively for massage.  She is allowed to deduct the % of square footage of the house used for the business, and that same percentage of the utility bills for the business.

But it's really easy to screw this up and try to take credit for things you aren't supposed to.  Consult a tax attorney before taking the advice of anyone here.