Crypto mining and taxes


#1

As a beginner miner with a few rigs, I will admit to being overly excited and diving first into the ‘easy’ part of mining ( tech ) without doing as much research as I need to about the most difficult part ( taxes! ). I’m here to try and catch up.

I did try to Google but only managed to confuse myself more. Hoping you guys can be gentle and spoon feed a bit.

Q: How do I value my coin ?

This link ( http://theminersunion.com/2017/09/11/what-you-need-to-know-about-bitcoin-mining-taxes/ ) says

“If you mined your bitcoins, as IRS Notice 2014-21 elaborates, miners have to recognize income for each bitcoin mined during the taxable year. The amount of income equals the market price of bitcoin on the day it is awarded on the blockchain, which is also then the miner’s basis in the bitcoin going forward and is used to calculate gain/loss in the future. The IRS illustrates an example for taxpayers.”

However, when I’m mining, its not directly but either with NiceHash or in a pool.

With NiceHash, I’m technically not mining directly for any coin but instead am just renting hashing power and getting paid on interval with fractions of BTC. The coin stays in my NH wallet for weeks until there’s sufficient amount to transfer out to my personal wallet.

With pool mining, I’m mining directly and am earning fractions of that coin that gets paid directly to my personal wallet ever few days. Until it gets paid to my personal wallet, I just have an outstanding balance that the pool owe to me.

With both scenario, I don’t know when a coin is awarded on the blockchain to the pool or nicehash. This information is transparent to me.

What would be the correct method to properly value my coin for taxes ?


#2

The way that we’re using it is that at the point of transaction (i.e. transfer) we’re taking the market value (via something like CoinPuffs) and putting that in our accounting ledger. We’ll report that value as income.

Over a year period, we’ll have a number of these to report.


#3

Wow, I’m impress at the quick reply John. I was still editing my ‘drivels’ to be more understandable. :sweat_smile:

To confirm, transfer meaning when I “cash out” from the pool or NH wallet and the coin hits my personal wallet ?

If that’s the case, it would make sense to keep balance for extended time on pool / NH wallet and move to personal wallet when BTC dip ? For sake of discussion lets assume NH is 100% reliable and trustworthy and unhackable. :joy:

Also, since BTC moves so much during the day, do you have to find the exact time the money hit your wallet and backtrack to figure out corresponding $ amount ?


#4

The thing is, if you’re using Nicehash, you should be able to have a daily account of what the Daily Average with a total value count. So, if you were ever audited you could provide a more refined accounting per day. That could work too. A bit more administration, but, not complex.


#5

I can’t disagree with John - A daily average price is a perfectly acceptable way to value the coins received with a big condition – You must be able to control the disposition of that awarded coin on that date.

so yes, I need a small clarification – When the coin is delivered into your NH wallet, can you control it at that time? Having control is nearly everything in taxes.


#6

Hey Peter, great to see a reply some you.

I’ve since checked in deeper. With NH, I’m unable control when my unpaid balance is paid to my NH wallet. Whenever it reaches more than .001 BTC, I get paid into my NH wallet. I then have the option to keep it on this wallet indefinitely, until I decide to transfer it to my personal or 3rd party wallet. I’m guessing since its in my control once it hits the NH wallet, for tax purposes, its considered mine and I’ll need to know the value of BTC on that date.

Digging deeper into NH system ( which I should have done before posting this thread … apologies ) I see that NH does provide payout in a CSV format with a BTC/USD rate for that day already specified for every payout, so that answers my question for NH.

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With the pool, I’m to leave the unpaid balance until I’m ready to withdraw. Then it goes directly to my personal wallet. I’m assuming in this case because I have control over the disposition of the coin, I should send it to my account on dip days.


#7

It’s really great of you to have provided a view of the report that you receive. Thank you! This is the first time I’ve seen what is provided.

With NH, I’m unable control when my unpaid balance is paid to my NH wallet.

I’ve heard from at least one other person that they can customize the awards – frequency ( daily, weekly, biweekly, etc), amount (eg must exceed X BTC), type of coin awarded (ETC, LTC, BCH, etc), exchange name/ account/ location, or wallet ID.


#8

@john @Peter_Rehm @lampstax it is a very good time to be in crypto and most importantly to have a community like Bitcoinpub. The new world of information and technology is without a doubt here.

Thank you guys for been on the lookout and always paying attention to comment and questions that really need answers and clarification :rocket:


#9

So the income portion seems pretty straight forward, record price on day of reward and treat as income. Is that the last time I need to worry about paying the tax man for these coins? Or is it then in the realm of capital gains once I go to eventually sell my coins? If that’s the case it seems like they’re double taxing me.
For comparison, if I go to my job and earn money I pay tax on my income, and that’s it, done.


#10

You can with certain pools like Flypool. You set your minimum that you want to be paid out and over the course of time you can get it pretty close to say a weekly payout or monthly. This is something I wish all pools did and something that I have requested for our Pub Pool.

NH does not have this ability. They pay out once a day to internal wallets on balances over 0.001BTC or once per day to external wallets of 0.01BTC. Below is a list of my payments. For me everyday at lunch I sit down and enter in my payout from NH into cointracking.info because the payment happens normally with in an hour of 0400 CST everyday.


@Shrimby - When you go to cash out, you will then also have to capital gains tax if the coin rises in value between when you mined it and when you sold it. This is why it is important to keep track of when you gained the coin its value at that time will determine if you have a loss or a gain between the time you mined it and the time you trade/sell it.


#11

Folks, Any discussion of mining as a business (LLC, SCorp etc) and how to approach deductions for things like equipment, electricity and other infrastructure and running costs?

I didn’t see mention of it here, maybe there is a thread I’ve missed…


#12

Other than within the Mining and Hardware topic a discussion of how to form and administer to a mining entity is not found anywhere on this forum. No real reason. It is generally dealt with on a one-to-one basis - an old hand will have a side (phone/ e-mail/ text/ IM) conversation with someone interested in gaining some information. There is some mention of it but it’s something that you’ll have to search for.

Would you like to form a thread for this or can I offer to assist you with a few questions?


#13

If you are in the US you just run it as a sole proprietor so there is no real reason to setup an LLC is what my tax advisor told me. He stated when you break 6 figure income then there are some tangible benefits to forming an LLC.

As a sole proprietor you can still deduct hardware costs electric and the like. I think something like 70% of small business are sole proprietor.


#14

So for example I’m mining Ethereum classic via ethash. I go to the ethermine website, set my payout to when I reach 10 ETC, when the coins are “paid out” to my personal wallet, that’s considered a taxable event correct? I’m hobby mining.

If one full ETC (1.0000) coin is $10 when fully mined, but when I pay out to my wallet at $30, for example, is that +$20 gain the taxable amount or is it the one full coin that was mined at $10? Sorry despite reading many posts and looking online, just a little confused and want to make sure everything is good when I’m reporting.

I don’t plan on selling my ETC as soon as they’re mined, but I’m HODLing them in my personal ledger wallet until they’re ready to be sold or possibly even used (if ETC is useable on a daily basis as currency and this tax debacle is sorted out better with the US regulators).

I was always afraid of the tax situation that I was going to run into when mining crypto, but as I continue to learn more about it and get it straightened out, I don’t think it’ll be all that bad. I’m using ethermine to pay out my ETC to my wallet at larger frequency amounts such as when I reach 10 ETC mined, instead of setting my payouts to every 1 ETC. I think it’ll be easier to track larger payouts at less time frequency/intervals. Luckily, ethermine tracks all that for you on the timestamp, value, amount of ETC paid out, addresses and so I was able to copy and paste this info to my excel spreadsheet to keep personal tracking/record of it. If I’m wrong here, please correct me.


#15

Thanks for this post, I was wondering about mining and tax reporting. So I’ll just report the value of my ETC when I payout from ethermine to my ledger nano correct?


#16

Unfortunately, taxes also affect Poland in the matter of cryptocurrencies. It’s not good.


#17

Cryptorice: You know that’s a good question - when is it taxable?

This is not tax advice. It is only my personal opinion.

A couple of thoughts on that:

  1. There are no tax pronouncements / laws on that. Maybe it’s not taxable until it’s in your wallet / under your control.
  2. There are practices/ doctrines and theories that would make even the smallest receipt taxable when it hits your Ethcash account. The doctrine that is most applicable is “constructive receipt”. Under this doctrine a taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid. In your case you have elected to be paid out when you have accumulated 10 ETC. I’m thinking that this doctrine applies to you.

Hope that helps. What you do is up to you.