Hi,
I am relatively new to mining and was wondering how some of yall do your taxes in the US? Do you report all of the crypto you mine? Do you even report it at all?
From my research it seems like 35% is taxed when you mine it and another 35% is taxed when you sell the asset…that’s 70% in taxes when you try to cash out your mined rewards. Is this correct?
Thank you.
TLDR: That’s not correct. Even at the worst case scenario, if you are very high income (like, $523,601+), you will pay 37% tax on value of coins generated, and then 37% tax on the gain made from selling the coins if held under 1 year. Far and away, most people are not in the 37% bracket and if you plan to MEIN and HODL, you’ll likely have that long-term capital gains rate too.
MORE DETAIL: If that does not make sense, it’s cliché, but you should TaLk To a CpA. When you start mining, you are literally running a for-profit business that has MaJoR iMpLiCaTiOnS for your taxes. Self-employment and capital gains taxes are complicated, especially if you have never done anything like this before. Taxes are annoying, but you want to stay above board on this to avoid future pain. The good news is that while all the below is a cost, generally, you can run your mining operation as a business and deduct lots of related expenses.
But my understanding (for US) is that when you mine and receive the crypto that is income and taxed at your marginal rate.
At this point, you have a cost basis. Any gain or loss from here is treated as a capital gain.
The first step is income, just like wages. So, example for someone in 22% tax bracket:
Income is now taken care of. Now, when you move back to USD, capital gains/losses come into play:
If you sell the coin for more or less than $1 in the future, this is now a capital gain or loss.
– Capital gains for items held less than 1 year at taxes as income. (So if you you sold 100 COIN at $1.20, you get $120 USD. The gain is $20 and this is taxed as income at your rate. In this case, 22% of $20 for $4.40 tax)
– Capital gains for items held a year or more is long term rate. For simplicity sake, this is 15% for most people.
– If you sell 100 COIN at a loss at $0.80, you get back $80 USD and have a $20 loss. This is now a tax deduction for you which means you you get a $4.40 refund at tax time.
If you sell the coin at $1 at any point it he future, you pay no additional tax. You should report this on your 1040 Schedule D to make sure there is future traceability.
Edit: Formatted a little bit more
Edit: Typo
@signifywinter I believe you’re correct, though I’d question whether most CPAs are up on crypto taxes - and if a CPA doesn’t know, they defer to conservative.
Crypto mining taxes seem onerous. If I owned a gold mining operation, I’d pay taxes for the gold that I sold (e.g. to cover operating expenses), not the gold that I extracted from the ground on a given day and held in inventory. For small time placer miners, they book income and pay taxes once they bring the raw gold to a refiner.
Anyways, off the soapbox . . . my question comes down to what really is the price that you mined coins in a particular day?
Crypto is a 24/7/365 market so there’s no closing price like there is with the stock market. And as we’ve all seen lately, crypto can move up/down very quickly. So at what price did I mine my coins today? And the price on what exchange (prices can vary from exchange to exchange with BTC let alone less liquid alts such as KDA and CKB)? And if at a certain time of day on a certain exchange, do I get to pick the bottom of a wick?
And when I sell my coins and try to determine short-term vs long-term cap gains, I assume that it’s first-in-first-out. Otherwise, then I’m always having to pay short-term cap gains tax.
@Zilina, you’re pretty close. You only pay income tax on the net income derived from mining operations, not the gross income. This is the aspect that is part of “self-employment”. If you have to buy a miner, pay to have that miner shipped, pay import taxes, pay electricity to operate that miner, and pay for an internet connection to connect that miner to a mining pool, that is all deductible from your income. Lot of caveats there, but that’s the general idea.
Most simply, if you mine $100 of coin and it costs you $25 in electricity to get that coin, you only owe income tax on $75.
But you can take much more advantage of the situation (and should - it’s part of the business you are running!). If your miner cost $500, you can write that off your income as well. If you buy a lot of equipment for mining, you’ll probably show a loss from mining in Year 1.
On your question of valuing the coins, it’s a funny thing. I’m not exactly sure and would like to hear on this. You’d probably ideally want the most recent trade at the time you transfer the coins as the most accurate valuation. This doesn’t sound that feasible, however, especially if you are auto-withdrawing from a pool.
In general though, so long as you are consistent with reporting methodology, that’s really what’s most important. I’ve seen corporate accountants use whatever the Wall Street Journal had as the value for a forex trading pair on the respective day. Once you pick something, just stick with that for as long as seems reasonable. Probably makes sense to pick the closing value from the most liquid exchange you can find and stick to that. Over time, the variance should even out.
I will say that crypto is an accounting nightmare. The only thing that helps is that I find it’s easier to keep these kinds of records as you go as opposed to having to figure this out many months later with a clear deadline (i.e., tax filing).
(this was from a coinbase email sent to me about taxes)
Coinbase states that if you pay with cash it’s not taxable? Well, how do you do that you have to deposit the cash into your bank then transfer it to your coinbase account to purchase a miner or to purchase a coin? So if I deposit cash doesn’t the IRS want to know where that cash came from so they can collect their taxes on it ( I don’t agree with that but). On another note why don’t everyone just gift a large amount to a friend and then have that friend re-gift it back to you. Or have the friend cash it out and give you the cash and then but more crypto and not pay tax because it was bought with cash. Any thoughts on this?
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