Cryptocoin Mining?

[rtsurfer]

Ok. Which wallet should I give them? I currently have about 7 BTC wallets..

How about the one with the lowest amount of coins.
That would be the logical choice.
Lol..

 

[taserbro]

Ok. Which wallet should I give them? I currently have about 7 BTC wallets..

Yep, actually probably more than that if you've been using QT for a long time. The prospect of having to explain how that works to someone untrained makes me feel very depressed.

 

[frowertr]

Ok. Which wallet should I give them? I currently have about 7 BTC wallets..

All of them.

Seriously, guys, smarter people than us have gone to federal prison for trying to cheat the IRS. If you get audited, you better damn well make sure you are honest and up front with them on everything they ask for.

 

[AyashiKaibutsu]

Ok. Which wallet should I give them? I currently have about 7 BTC wallets..

I hear Wesley Snipes knows the right one.

 

[KingFatty]

So can someone explain it more simply, I still don't get it.

How do you pay taxes on coins you mine yourself?

So I have zero coins, then I mine 1 coin on the first month. Do I pay taxes for just getting that coin?

Then, I hold the coin for the next two months and it's value increases. Do I pay taxes on the increase in value over just those two months?

That's a really simple example, but I get even more confused when you consider that each day you can mine like 0.006 coins. So do you pay taxes for that amount the first day, then you re-evaluate for 0.012 coins the next day, and so on for infinity?

I'm just really confused when it comes to mining.

Treating coins as property like stocks is really easy when it comes to trading and buying coins like you would a stock. But there is no analogy to stocks when it comes to mining, and I think the way it's supposed to work is just hurting my brain, because the value changes depending which day you mined, and it's a tiny bit each day, not like a lump sum?

 

[Virge_]

All of them.

Seriously, guys, smarter people than us have gone to federal prison for trying to cheat the IRS. If you get audited, you better damn well make sure you are honest and up front with them on everything they ask for.

If by "smarter" you mean they can subpena banks/credit card companies for records showing each individual transaction to then nail you, you are correct.

How exactly are they going to decrypt the block chain to prove anything? Please, I implore you - educate me as to how smart the IRS is.

 

[GrumpyMan]

How exactly are they going to decrypt the block chain to prove anything? Please, I implore you - educate me as to how smart the IRS is.

Well, don't they usually shift the burdon of proof to you instead of them when taking you to court? So they don't have to figure anything out?

 

[taltamir]

Ok. Which wallet should I give them? I currently have about 7 BTC wallets..

all of the them, the whole point is to make it a nightmare of micromanagement so that you stop using it and get with the program and use fiat money

alternatively, they get to throw you in prison for being a subversive element who was stupid enough to cheat on his taxes

 

[frowertr]

If by "smarter" you mean they can subpena banks/credit card companies for records showing each individual transaction to then nail you, you are correct.

How exactly are they going to decrypt the block chain to prove anything? Please, I implore you - educate me as to how smart the IRS is.

They ask for your records. You hand them what you have. They find out you tried to screw them, you get fined heavily or worse. It's not rocket science man. You want to be the test case in the crypto world that decided to go up against the IRS? Be my guest. Have fun rolling that dice game.

 

[Subyman]

So can I deduct crypto loses? IRS may be asking for trouble if the bubble pops

 

[Subyman]

So can someone explain it more simply, I still don't get it.

How do you pay taxes on coins you mine yourself?

So I have zero coins, then I mine 1 coin on the first month. Do I pay taxes for just getting that coin?

Then, I hold the coin for the next two months and it's value increases. Do I pay taxes on the increase in value over just those two months?

That's a really simple example, but I get even more confused when you consider that each day you can mine like 0.006 coins. So do you pay taxes for that amount the first day, then you re-evaluate for 0.012 coins the next day, and so on for infinity?

I'm just really confused when it comes to mining.

Treating coins as property like stocks is really easy when it comes to trading and buying coins like you would a stock. But there is no analogy to stocks when it comes to mining, and I think the way it's supposed to work is just hurting my brain, because the value changes depending which day you mined, and it's a tiny bit each day, not like a lump sum?

Its not as complicated as you are making it.

You pay tax on the gain measured between the time you acquired the asset to the time you sell the asset. In your case, you could keep a record of the cost of the electricity you used AND the mining equipment cost. So when you sell the coin in the future, you deduct the "cost" of acquiring it.

More easily, if I purchased BTC at $20 a year ago and sold it at $500 now, I would pay capital gains on $480. You do not pay tax at the moment you acquire the asset but at the moment you realize the gain, which is when you sell.

 

[Virge_]

They ask for your records. You hand them what you have. They find out you tried to screw them, you get fined heavily or worse. It's not rocket science man. You want to be the test case in the crypto world that decided to go up against the IRS? Be my guest. Have fun rolling that dice game.

What records, exactly? I mine BTC with a USB device on a P2P node and have it pay out to a paper wallet. Explain to me how the IRS could POSSIBLY find out unless I tell them?

Serious question.

 

[Kenmitch]

Its not as complicated as you are making it.

You pay tax on the gain measured between the time you acquired the asset to the time you sell the asset. In your case, you could keep a record of the cost of the electricity you used AND the mining equipment cost. So when you sell the coin in the future, you deduct the "cost" of acquiring it.

More easily, if I purchased BTC at $20 a year ago and sold it at $500 now, I would pay capital gains on $480. You do not pay tax at the moment you acquire the asset but at the moment you realize the gain, which is when you sell.

For a miner in a pool when would the acquired come to play? For example if my share payout was 0.001695 LTC would I have to figure out what it was worth at that split second in time? Would I figure price based on when I cash out from the pool and send to a wallet or exchange? If I send it to an exchange and once the transaction is verified the coin is worth $17.19 and by the time I sell it's worth $17.11 I don't have to bother doing the math to figure anything out?

The gain part is simple to understand.

I'm a X small time LTC miner only using the LTC to offset the hardware costs. I'll never be in the plus once hardware and power costs are factored in.

 

[IEC]

What records, exactly? I mine BTC with a USB device on a P2P node and have it pay out to a paper wallet. Explain to me how the IRS could POSSIBLY find out unless I tell them?

Serious question.

They don't have to find out. They just have to suspect (maybe based on cash flow to a bank account) that you are gaining income that you are underreporting/not reporting. Then the burden of proof is on YOU to demonstrate that you are in compliance.

Trust me, it is not worth it to try to save a few bucks on taxes. In the case of crypto, I may just report any BTC I sold as income even if I mined it (and had costs associated with it), because I don't want to deal with the potentially destructive consequences of an audit. In my case I have little income right now anyways as a grad student...

Some IRS employee posted in the HardForum thread meaning they are probably watching this thread too...

 

[KingFatty]

You pay tax on the gain measured between the time you acquired the asset to the time you sell the asset. In your case, you could keep a record of the cost of the electricity you used AND the mining equipment cost. So when you sell the coin in the future, you deduct the "cost" of acquiring it.

I'm with you here, it's a matter of saying "Each bitcoin costs $12 in electricity costs." But that's totally not true. I have no way of knowing how much my electricity costs are per bitcoin because the mining is spread out over days and days, and within that timeframe the price of bitcoin constantly fluctuates.

You can't just assess a basis for bringing the coin into existence, and I don't know how you can. Both things are constantly fluctuating each day; the value of coin you are holding while trying to mine it, and the amount of electricity it finally takes to get the coin.

So I mine all this week and get three 0.01 BTC deposits. Are you saying that I have to record the basis for each 0.01 BTC, so I'll have a basis value that I have to keep track of with *EACH AND EVERY* time the pool makes a 0.01 BTC deposit to my wallet? That's horrendous, but you see how the issue is it could take 3 days or 5 days of mining electricity to achieve that 0.01 BTC deposit. Then it's complicated by the fact that I would also have to make note of the particular value of that 0.01 BTC deposit at the time of the deposit.

That's the only way I can see this being possible. You would have to, with each BTC deposit into your wallet, note the instantaneous dollar value of the deposit, and subtract the amount of electricity it took to get that deposit. Maybe I'm missing something, but is there an easier way to establish the basis for coins that you mine?

More easily, if I purchased BTC at $20 a year ago and sold it at $500 now, I would pay capital gains on $480. You do not pay tax at the moment you acquire the asset but at the moment you realize the gain, which is when you sell.

I agree for buying/selling, that's easy as pie. The issue is for mining. How do you establish the basis for coins you mined out of thin air? We know it costs electricity, but the issue is the mining is spread out over weeks and weeks of fluctuation in how long it takes to mine a particular fraction of a coin, how much electricity that fraction costs, and how you incorporate the fluctuating value of BTC at the time that fraction was deposited into your wallet.

 

[frowertr]

They don't have to find out. They just have to suspect (maybe based on cash flow to a bank account) that you are gaining income that you are underreporting/not reporting. Then the burden of proof is on YOU to demonstrate that you are in compliance.

Bingo. If you are converting BTC into fiat and then withdrawing that to a bank account, they will know about it. Every bank account (in the U.S.) has a SSN attached.

Now if you aren't converting into fiat and you are just holding BTC in a wallet, then it is quite possible they may not know about it. But are you really making enough (hundreds of thousands of dollars or more) to make it worth the risk of them finding out? And how do you plan to ever convert that BTC to cash in the future??

 

[Virge_]

Bingo. If you are converting BTC into fiat and then withdrawing that to a bank account, they will know about it. Every bank account (in the U.S.) has a SSN attached.

Now if you aren't converting into fiat and you are just holding BTC in a wallet, then it is quite possible they may not know about it. But are you really making enough (hundreds of thousands of dollars or more) to make it worth the risk of them finding out? And how do you plan to ever convert that BTC to cash in the future??

You are if you cash out in another country that doesn't treat things with such a high degree of ignorance and disdain.

 

[MrK6]

They don't have to find out. They just have to suspect (maybe based on cash flow to a bank account) that you are gaining income that you are underreporting/not reporting. Then the burden of proof is on YOU to demonstrate that you are in compliance.

Trust me, it is not worth it to try to save a few bucks on taxes. In the case of crypto, I may just report any BTC I sold as income even if I mined it (and had costs associated with it), because I don't want to deal with the potentially destructive consequences of an audit. In my case I have little income right now anyways as a grad student...

Some IRS employee posted in the HardForum thread meaning they are probably watching this thread too...

This guy gets it. If you're just now starting to think about how to legally get your money, you screwed up big time.

 

[njdevilsfan87]

Bingo. If you are converting BTC into fiat and then withdrawing that to a bank account, they will know about it. Every bank account (in the U.S.) has a SSN attached.

Now if you aren't converting into fiat and you are just holding BTC in a wallet, then it is quite possible they may not know about it. But are you really making enough (hundreds of thousands of dollars or more) to make it worth the risk of them finding out? And how do you plan to ever convert that BTC to cash in the future??

And this is why I never bothered cashing out more than I put into the market. I just don't want to deal with taxes over small amounts. If the day comes that I cash out of crypto and have to pay taxes, it will be a good day for me and the IRS that takes their cut.

But to go and say miners have to pay taxes as they mine (and not necessarily cash out) is ludicrous. I will just sell all of my mining equipment, and use that money from the mining equipment to buy the coins straight up from a Chinese miner if capital gains is all I have to worry about in that scenario. Though at this point my equipment probably isn't worth much.

 

[wand3r3r]

Then you have countries which treat BTC like this http://www.coindesk.com/denmark-declares-bitcoin-trades-tax-free/

I wonder if that will foster a huge BTC industry there, maybe exchanges etc. will migrate there with that law.

 

[Brekyrself]

Great article on Bloomberg about bitcoin 2.0 technologies.

http://www.bloomberg.com/news/2014-...-technology-evolving-beyond-use-as-money.html

Those who held protoshares should be a nice spot once bitshares are launched. Same goes with those who currently hold protoshares as they have announced some more projects with snapshots around the corner.

 

[T_Yamamoto]

So pretty much, never change BTC into fiat and the IRS will have a lot harder chance of accusing you of getting additional income.

Correct?

 

[Virge_]

So pretty much, never change BTC into fiat and the IRS will have a lot harder chance of accusing you of getting additional income.

Correct?

It's actually even more simple than that - use BTC to buy silver. Unload silver. Done.

 

[geokilla]

This is so sad... What the hell happened. Losing so much money mining anything and everything.

 

[Virge_]

This is so sad... What the hell happened. Losing so much money mining anything and everything.

This is a frequent event. Ride it out. It really only hurts people mining for profit, and I could care a bit less about them anyway.