Some people were posting on Taxes so I thought would answer the question:
This is not meant to cover every possible aspect of taxes, just to clear up some general questions. You should consult your CPA / tax attorney for further information. This post is not legal advice and no attorney client privilege is created.
Please do not send me e-mails about your specific tax questions. I will not answer them.
Per the IRS guidance of 2014, all coins are treated as property and are TAXABLE at the point of MINING.
Taxable means it MUST be included in your gross income. No exceptions.
This means that AS YOU MINE COINS on PH (or any site), you have your FIRST TAXABLE EVENT.
-------> I can't stress enough that It does not matter if you sell the coins <---------
Once you mine the coin, you have the "basis" for that coin.
As the price rises or falls, AND you sell your coin, you then have a SECOND TAXABLE EVENT known as Capital Gains or Capital Loss.
The capital gain / loss is the change in price AFTER you mine the coin post sale.
Capital gains and losses DO NOT offset the taxes originally owned from the initial taxable event.
If you mine coins, you are also likely subject to self employment tax. This is however very fact specific BUT know that the IRS will likely err on the side of saying you OWE the tax.
If you have 5+ machines .... and you plan on writing off the cost of electric and equipment ... you better be paying the self employment tax. If you plan on arguing you get to write off your expenses as a business then it will be very difficult (near impossible) to argue that you do not need to pay the self employment tax.
You can not deduct 100% of the machines from your business income as a business expense. Let's say your bought 10 machines in 2017. Machines and other capital equipment MUST be deducted over their useful life.
Unless you want to argue that the machines have no value after Jan 1, 2018, you can no take 100% of the purchase cost in 2017. Maybe you want to deduct 75% in 2017 and save 25% for 2018? That's your decision... but it must be justifiable in an audit.
******* Example deleted as it appears to be causing more confusion than help **********
Here is the famous IRS guidance: