What You Need to Know About Bitcoin Mining Taxes – The Miners – Union
Bitcoin mining is not a tax free exercise – no matter if its a hobby or for business. Knowing how taxes play a role te your bottom line is key to realizing all the benefits of dedicating your expensive hardware to secure a decentralized cryptocurrency network.
The IRS highlights the tax implications of bitcoin mining te Notice 2014-21, Q-9. The regulatory agency defines an individual who “mines” virtual currency spil a “trade or business subject to self-employment tax on the income derived from those activities.”
So long spil not done by the taxpayer spil an employee, Bitcoin received through ‘mining’ for trade or business often constitutes self-employment income. Nipt earnings ter self-employment is equal to gross income from trade or business, less allowable deductions.
Individuals generally work spil employee or independent contractor. On behalf of their employees, employers account for, and collect via payroll employment taxes. Individuals work spil 1099 independent contractors and account for their own taxes.
If you mined your bitcoins, spil 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 onderstel te the bitcoin going forward and is used to calculate build up/loss ter the future. The IRS illustrates an example for taxpayers.
“…[A]ssume you mine 1 bitcoin ter 2013,” the government tax agency writes. “On the day it wasgoed mined, the market price of bitcoin wasgoed $1,000. You have $1,000 of taxable income te 2013. Going forward, your voet te the bitcoin is $1,000. If you zometeen sell the bitcoin for $1,200, you have a taxable build up of $1,200 – $1,000 = $200.”
It adds: “Your mining expenses, such spil electro-therapy, would not be included into voet. Instead, they would be deductible te the taxable year spil an expense. Miners will need to determine if their mining activity rises to the level of a trade or business, which is a very factual determination.” The Agency also outlines what sorts of expenses a miner can deduct.
“If your mining operation is substantial and continuous enough to be considered an actual business, then you can deduct all of your ordinary and necessary expenses,” writes the IRS. “This would include the cost of tens unit and depreciation on your mining equipment, among others. If your mining operation is not substantial or continuous, you would deduct expenses like an ordinary investor.
The tax treatment of Bitcoin mining is “uncertain”, the IRS admits. “So, its significant that you obtain the advice of a tax professional with regards to whether or not your activity rises to the level of a trade or business.”
Miners vereiste pay bitcoin mining taxes whether it is a business or a hobby. Self-employment tax voorwaarde be paid when your netwerken self-employment income is more than $400 ter any tax year. Should the IRS determine that your bitcoin mining activities represent a business, your tax liability might be diminished through tax deductions and credits for business expenses. If the IRS sees your mining spil a hobby, thesis options are not available.
Mining bitcoins, the process of which which is considered income, constitutes a taxable event, and expenses can be deducted if the IRS determines your operations to be a business. When miners sell their bitcoin, they can be taxed on the capital gains based on the amount the holding’s value had enlargened since the time of mining.
When this amount represents a loss, then it could be announced spil such for tax purposes. (The IRS sees mined bitcoins spil instant income at market value of the mined coins mining date) Therefore, it is significant miners know the price of bitcoin at the time of the coins having bot mined.
The above information applies generally to alternative cryptographic assets and mining pools alike. Many independent contractors are required to make quarterly tax payments or face a penalty for a failure to make timely payment.
There has bot an ongoing discussion of this topic at BitcoinTalk. See that here. Be sure to investigate the IRS comments on bitcoin mining here.
Picture Source: Author photo of Giga Watt (crypto miner) facility