Death and taxes

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keybored

Active Member
May 28, 2016
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https://www.irs.gov/pub/irs-drop/n-14-21.pdf

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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 selfemployment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on selfemployment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.
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maze

Active Member
Apr 27, 2013
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Thank god the Danish IRS gave an answer stating that only people trading cryptos should pay tax of the earnings.
 

marcoi

Well-Known Member
Apr 6, 2013
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Gotha Florida
i talked to my tax guy and this is what he told me based on current IRS info.

Q:I plan on mining digital currency, will be buying equipment to do so over the next few months. Can I claim the equipment as business expense? I’m assuming it would be consider regular income from a tax perspective and only be consider income when I go to sell it for US dollars and collect money?

A: Yes you can claim the equipment as business expense.
According to the IRS, when a taxpayer successfully “mines” Bitcoins and has earnings from that activity whether in the form of Bitcoins or any other form, he or she must include it in his gross income after determining the fair market dollar value of the virtual currency as of the day he received it. If a bitcoin miner is self-employed, his or her gross earnings minus allowable tax deductions are also subject to the self-employment tax.

So it seems i need to track each coin i make mining, with days FMV and include it as income since im self-employed. I am going to check if i can claim electricity as well.
 

modder man

Active Member
Jan 19, 2015
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i talked to my tax guy and this is what he told me based on current IRS info.

Q:I plan on mining digital currency, will be buying equipment to do so over the next few months. Can I claim the equipment as business expense? I’m assuming it would be consider regular income from a tax perspective and only be consider income when I go to sell it for US dollars and collect money?

A: Yes you can claim the equipment as business expense.
According to the IRS, when a taxpayer successfully “mines” Bitcoins and has earnings from that activity whether in the form of Bitcoins or any other form, he or she must include it in his gross income after determining the fair market dollar value of the virtual currency as of the day he received it. If a bitcoin miner is self-employed, his or her gross earnings minus allowable tax deductions are also subject to the self-employment tax.

So it seems i need to track each coin i make mining, with days FMV and include it as income since im self-employed. I am going to check if i can claim electricity as well.

If that is the case how do you plan on going back and paying taxes on the FMV on everything you have mined. Seems like that would be incredibly difficult to track.
 

marcoi

Well-Known Member
Apr 6, 2013
1,532
288
83
Gotha Florida
If that is the case how do you plan on going back and paying taxes on the FMV on everything you have mined. Seems like that would be incredibly difficult to track.
i'm not going to go back and deal with any past mining efforts since they were small and were used to pay for equipment only. Now that I'm thinking of doing mining as a business, i will need to keep track of all my mining efforts in an excel spreadsheet.

I think i decided that i will report mining at coin level if i keep it in wallet. If i end up converting it say to a more stable coin, I don't plan on tracking the micro transactions as that is going to be a PITA and adding that extra level would make it way to frustrating.

So current plan
1. create excel spreadsheet.
2. any coins i mine and keep as holding will be documented in excel at time mined with FMV (I will average the day out)
3. Any coins i mined and sell for another coin, I will document in excel at time traded for trade value of final coin.
4. I will track electricity using averages and killawatt and report monthly average
5. end of year, I will tally up all fields and report income on value at time.
6. If I sell a coin for usd, i will mark the sale amount and if it was gain or lose.
7. send the mess to tax guy to include in my taxes.

I dont know if the above will work out, i might give up mid plan. Depends on how profitable it becomes vs how much of a PITA it becomes.
 

keybored

Active Member
May 28, 2016
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If that is the case how do you plan on going back and paying taxes on the FMV on everything you have mined. Seems like that would be incredibly difficult to track.
Some (all?) pools have screens/pages that list all payouts to your address along with the date and amount. Should not be too difficult to match up against a price chart.
 

Joel

Active Member
Jan 30, 2015
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Some (all?) pools have screens/pages that list all payouts to your address along with the date and amount. Should not be too difficult to match up against a price chart.
Sure, but if our main interest is conversion of coin to USD (or your local fiat), then the tendency would be to overstate income due to losses in the multiple steps (and outstretched hands) involved in the conversion process, unless we also track those expenses. Gets really tedious, really quickly.
 

marcoi

Well-Known Member
Apr 6, 2013
1,532
288
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Gotha Florida
I think there will be two tracks to follow here:
1. those keeping coins long term for investments. IE mine them when new and sell when the price increases 2000% etc.
2. Mine and sell to create revenue.

track 1 should be easier to manage. less tracking, just need payout of mined coins and FMV of the day
track 2 i can see being a lot more involved. due to all the steps involved. might be able to get away with just reporting income of selling the coins and skip all the pre-steps. Not sure how IRS will like that, but since it new thing i would think they would be considerate? Also not sure if skipping all the steps would be better from a tax perspective (IE might be less taxes to pay income on FMV at time and then a gains/lost when you sell.)
 
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Joel

Active Member
Jan 30, 2015
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I think the answer is, as always, "it depends..."

If the coin is appreciating while holding it, then calling it income + capital gain results in lower tax. But if the coins lose value while holding, then you can deduct capital losses against your income only up to $3000, but excess can carry over to future years.