Taxes - Clearing up some Questions (USA ONLY)

Encounter a problem related to the pool or have a request for a feature? Post your issue here and we will help you out.
User avatar
3Moose
Posts: 102
Joined: Sat Aug 26, 2017 6:14 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by 3Moose » Mon Nov 06, 2017 9:29 am

lemarc723 wrote:Moose - ok, well I've never heard of that for business- but to clear, I probably will edit my post as I was just trying to be helpful and not debate your points. If what I posted contradicts then let's edit it out so my post doesn't give out "bad info". I am concerned when I hear you can self select useful life. I would be concerned about an auditor not buying it and then having to defend yourself perhaps all the way up to tax court. Of course, lots of businesses would love to make their equipment 2 or 3 years instead of 5 or 7! MACRS are rules as you know.

I don't dispute what you say you were told - but can you get any documentation or tax ruling on "self selected useful life"? I have a colleague who is a CPA and deals with tax - I'll send the question out to him as well. Again, not debating your point, just looking for something I could use to support it.

I think you gave very good information.

On the depreciation table issue.... its very fact specific. Mining equipment has a very short life. For example, those who purchased a D3 might see them become obsolete in less than a year given the market. Naturally, that is not true for the S9.
User avatar
3Moose
Posts: 102
Joined: Sat Aug 26, 2017 6:14 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by 3Moose » Mon Nov 06, 2017 9:34 am

Take the Baikal Giant-A900 --- lets say you bought one on Jan 1. I can't imagine you could not argue to an IRS auditor that it was not obsolete. I would write that entire thing off. If I were to get audited, I think it would be easy to show the tech obsolesce.
lemarc723
Posts: 16
Joined: Tue Oct 17, 2017 11:35 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by lemarc723 » Mon Nov 06, 2017 10:11 am

3Moose wrote:Take the Baikal Giant-A900 --- lets say you bought one on Jan 1. I can't imagine you could not argue to an IRS auditor that it was not obsolete. I would write that entire thing off. If I were to get audited, I think it would be easy to show the tech obsolesce.
I agree - just trying to see how you determine this "obsolete" time period "up front" on day 1 of putting the asset into service. I could see the IRS allowing a "write off" (loss) of the remaining value in year 2 after obsolete, but I still am scratching my head on setting up a 2 year schedule in advance.

Have you thought about just using the 200% accelerated schedule? For "computers" (5 years) - and a $3,000 miner - that's 40% year 1 = $1,200 + (50% bonus) $600 = $1,800 depreciation year 1. Year 2, the beginning of the year basis of the asset is now $1,200, so that's 40% = $300. Then during year 2 it becomes obsolete. In tax year 3 you take the asset out of service on Jan 1 and take an operating loss of ($900). To me this avoids all the potential issues as this is just standard GAAP (Generally Accepted Accounting Principles).

For small scale operations I'd Section 179 all ASIC miners and take 100% year 1 in a "first year expensing" and be done with it. I'd schedule out GPU systems as "computer equipment" class assets and use 200% declining balance. You are right for large scale with 100's of these systems you probably want to pick other strategies.
User avatar
3Moose
Posts: 102
Joined: Sat Aug 26, 2017 6:14 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by 3Moose » Mon Nov 06, 2017 10:32 am

This is where it just comes down to how much you want to argue (if audited). I admit, that I am willing to be aggressive with the tax code because I expect to have a mid six figure tech investment.
User avatar
3Moose
Posts: 102
Joined: Sat Aug 26, 2017 6:14 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by 3Moose » Mon Nov 06, 2017 10:50 am

To your point, Section 179 -- is a gift for large miners.
User avatar
Aura89
Posts: 211
Joined: Mon Oct 02, 2017 12:12 am

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by Aura89 » Mon Nov 06, 2017 1:44 pm

All of this has pretty much just made me want to stop mining completely.

Not because i'm afraid of paying taxes. I was under the understanding when i started, though apparently very bad understanding, that nothing was taxable until you convert it to USD, in which case was told to provide whatever you converted to USD as "other income". From this post, this is definitely, and absolutely wrong.

The reason i want to just stop, is because it is exceedingly and unnecessarily complicated, to the point that i know for certain i can't do my own taxes now. This wouldn't be a problem, if i thought i could just go to any tax place to do my taxes, but considering cryptocoin is unknown to most people still, and i live in an area that definitely will be unfamiliar with it, i feel i have nowhere to turn to, to make sure anything and everything gets submitted correctly, the correct taxes get paid, and i don't get audited.

I have 1 L3+ and am holding onto my coins, probably at least for another 1 and a half years, and do not convert to USD even for electricity. As well i have purchased coin.

So basically, i feel screwed. Oh well.
User avatar
3Moose
Posts: 102
Joined: Sat Aug 26, 2017 6:14 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by 3Moose » Mon Nov 06, 2017 2:49 pm

Aura89 wrote:All of this has pretty much just made me want to stop mining completely.

Not because i'm afraid of paying taxes. I was under the understanding when i started, though apparently very bad understanding, that nothing was taxable until you convert it to USD, in which case was told to provide whatever you converted to USD as "other income". From this post, this is definitely, and absolutely wrong.

The reason i want to just stop, is because it is exceedingly and unnecessarily complicated, to the point that i know for certain i can't do my own taxes now. This wouldn't be a problem, if i thought i could just go to any tax place to do my taxes, but considering cryptocoin is unknown to most people still, and i live in an area that definitely will be unfamiliar with it, i feel i have nowhere to turn to, to make sure anything and everything gets submitted correctly, the correct taxes get paid, and i don't get audited.

I have 1 L3+ and am holding onto my coins, probably at least for another 1 and a half years, and do not convert to USD even for electricity. As well i have purchased coin.

So basically, i feel screwed. Oh well.

Many people were (are) under that same belief. It's infuriating. I personally think that its very unfair tax treatment but.... the IRS does not care how I feel. If we were gold miners, we would not have to pay taxes upon mining gold - only upon sale.

Consider the worst possible case where you mine all year, and don't sell a single coin. Then, the price drops to zero. You still owe taxes as if the price never fell. You can have a XXXX tax bill and no coins to sell to raise the money. Scary if you don't have a savings.

At the end of the day, the IRS just wants (expects) you to sell every day to raise enough for taxes.
lemarc723
Posts: 16
Joined: Tue Oct 17, 2017 11:35 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by lemarc723 » Mon Nov 06, 2017 3:02 pm

Aura89 wrote:All of this has pretty much just made me want to stop mining completely.

Not because i'm afraid of paying taxes. I was under the understanding when i started, though apparently very bad understanding, that nothing was taxable until you convert it to USD, in which case was told to provide whatever you converted to USD as "other income". From this post, this is definitely, and absolutely wrong.

The reason i want to just stop, is because it is exceedingly and unnecessarily complicated, to the point that i know for certain i can't do my own taxes now. This wouldn't be a problem, if i thought i could just go to any tax place to do my taxes, but considering cryptocoin is unknown to most people still, and i live in an area that definitely will be unfamiliar with it, i feel i have nowhere to turn to, to make sure anything and everything gets submitted correctly, the correct taxes get paid, and i don't get audited.

I have 1 L3+ and am holding onto my coins, probably at least for another 1 and a half years, and do not convert to USD even for electricity. As well i have purchased coin.

So basically, i feel screwed. Oh well.
I'd give Taxcut for Business a try... this could take care of your mining taxation. For the capital gains - you do have to put together a spreadsheet as I don't think any exchange (unlike a securities broker) is going to track your original cost basis. But once you have that spreadsheet then you plug it into Taxcut and it will figure it out for you.

If you were trying to do all this by "hand" then I would agree with you - but after you do it one time using the tax software you'll feel better about it. Right now it just looks complicated and too difficult. You won't feel better about the taxes you owe - but we all get that feeling :{ You probably have enough expenses to really make a dent in what you actually owe on the mining - so this may turn out to be a nothing burger.

And not trying to be a smart alec - but how much are we really talking here in terms of $ (you ask that of yourself) - the IRS is interested in whales. They aren't going to spend a lot of time on you about a couple thousand dollars. Just amend your tax returns with a 1040X put a check in the mail and don't worry about it.
User avatar
Aura89
Posts: 211
Joined: Mon Oct 02, 2017 12:12 am

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by Aura89 » Mon Nov 06, 2017 3:15 pm

So if i'm understanding this correctly, the information i need to record, for tax purposes, is:

How much the coins were when i originally mined them, which on the daily portion of prohashing should be those numbers and just add each day up.

The difference between that value and what the current value of said coins are at the end of the year.

The difference between the value of coins i bought at the time i bought them, and what they are worth at the end of the year.




I honestly don't mind paying the taxes, i mean sure we all wish we could keep more of what we earn, but that portion is not what i care about, only that i pay the correct.
lemarc723
Posts: 16
Joined: Tue Oct 17, 2017 11:35 pm

Re: Taxes - Clearing up some Questions (USA ONLY)

Post by lemarc723 » Mon Nov 06, 2017 5:41 pm

Aura89 wrote:So if i'm understanding this correctly, the information i need to record, for tax purposes, is:

How much the coins were when i originally mined them, which on the daily portion of prohashing should be those numbers and just add each day up.

The difference between that value and what the current value of said coins are at the end of the year.

The difference between the value of coins i bought at the time i bought them, and what they are worth at the end of the year.




I honestly don't mind paying the taxes, i mean sure we all wish we could keep more of what we earn, but that portion is not what i care about, only that i pay the correct.
You need to track the cost basis when you were paid from the pool. I'd have the amount and price paid for each day - don't just add all them up - keep a daily log. This will also serve as your cost basis for capital gains if and when you sell. Any fee you paid in the pool is also a tax deduction, as it is an expense - regardless of the pool taking out the fee first or not. It's still a fee which is an expense to your business.

You need to rank your payments according to date paid. When you sell - you will use the earliest cost basis first until you match the amount you actually sold. This is best done with a spreadsheet.

I don't think you need to worry about what they are worth at the end of the year. That won't be used for anything (that I am aware of). You aren't carrying an inventory so this isn't needed.

Secondly, you need to track when you "sell" - the amount and cost you sell for. Also track any fees you pay for conversion. Again best done with a spreadsheet.

On the expense side - keep track of all your utilities, not just power, Taxcut will ask questions about expenses that will jog your memory.

For depreciation and expense keep track of all your purchases, including supplies (and a whole list of potential expense items).
Post Reply