Taxes based on when you take control (transfer from pool wallet to your wallet). So a low price is the right time and starts your long-term capital gains tax clock for when you sell, trade or use to buy.
Mining profits are taxable in the US.
When you mine crypto it is treated as income at the time it is mined. Transferring it to your wallet is not want triggers the recognition of mining income. So your basis is set at the point it is mined and this starts the clock for short or long term capital gains.
Not in the US. Do better research. The taxable event is when you get control.
That’s what I was thinking as well, I hope that’s correct. If I never get it in my wallet or exchange you can’t tax it. I raised my threshold for payouts for a couple of reasons. This being one, and also each transaction is an event, so less payouts to my wallet/exchange make it easier to manage records for tax time.
Just started mining… How do they track what is sent to your wallet.
say I have Trust Wallet, will Trust wallet send you something?
I will start by saying that taxes are based on the laws, court cases, guidance, and the generally accepted standards of accounting and business. There determination will be based on the facts and circumstances of the issues after the applied laws and standards are applied.
The following is not meant as tax advice, for this you should go to a trained professional. Also realize that not all professionals will be correct in the advice that they give you and it does not matter how many years they have been practicing.
Notice 2014-21 states this:
“Q–8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?
A–8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.”
The first transaction of a newly minted coin is to be recorded on the blockchain. The blockchain is a public transaction ledger.
Receipt is defined in the case law. For example if you are an owner in a LLC and your share of the profits is $1 million thot they report to you with a K-1, even if you receive none of the money, you still have to pay taxes on the entire amount.
The answer from the IRS says “successfully mines” this is when the miner would receive the coin and not when it is transferred to their wallet. It is part of control after you mine the coin you control and direct what happens to it.
If you are a small miner using your definition is most likely ok since the Tax agencies typically will not go after a small amount of taxes.
But using your logic of receipt make no real sense. If you mined a Bitcoin and it is in the mining pool and then you transfer that Bitcoin to Bitmain for new miners you earn no income and you received miners from Bitmain for free.
Also using your logic and you mined $1 million in Bitcoin at the beginning of the year and you do not transfer it to an exchange or personally controlled wallet, you have no income. Let’s take this even further and two years later you transfer the Bitcoin to an exchange and it is worth $10k at that time. According to you the income is only $10k.
Most tax agencies follow a rule or reasonable and consistent. This is typically defined as what a typical person or business would also do and the consistent part means regularly and not changing from the method.
If you pull your mined coins daily or weekly and maybe monthly to the exchange my guess you will be fine with a tax agency review. Timing the coin movement to the exchange to when the price of the mined coin drops and not doing it regularly is inconsistent with the tax rules of most tax agencies.
There is also a difference if this is a hobby or a business for you. Just remember if you treat it as a hobby and you grow what you are doing and consistently make money from it, the tax agencies could reclassify it as a business. The opposite is also true and mining is a business and you consistently loose money for years, they can reclassify the business as a hobby. Both events can have big tax implications.
I disagree with receipt of the coin. To me it’s when it hits your personal wallet and have control. You work 40 hours a week, but are not taxed until you are paid for the 40 hours. Not 10 or 39, but 40. That’s when you have control.
Corporate tax is different. I own fully or at a +2% shareholder in a number of S Corps. I get a K1 showing my taxable distribution. It does not matter if I got none, some or all of that distribution, I am taxed on it. But that’s a very different tax circumstance. And I am aware as to what and why each company is doing what they are doing with regards to my distribution. Sometimes I re-invest, changing my cost basis.
I won’t get into hobby or business. I do it as a business and am aware of the income/self employment tax implications if a C/S corp, LLP, whatever. And Sch C if as an individual.
But the companies I am involved in like to close as many open/ongoing transactions on or just before Dec 31. That doesn’t mean that they haven’t received any income from those throughout the year. This is end of year stuff, the same way folks sell losing stocks in December.
One final note based on my “control of coin” issue. If your pool has a minimum payout, that dictates the earliest you can have control. But it they let you change that or turn off auto payouts, you have the control of when you receive the coin.
Having been audited three times by the IRS (once they found an error in my favor as an expense wasn’t included but discovered during the audit), I fairly confident in my tax position.
As I have said before taxes are based on the facts and circumstances of the issue. For you and your specific facts and circumstances what you stated may be 100% correct. It does not mean it is correct for everyone else, it is only correct for people with very similar facts and circumstances.
The example used for an employees wages is not the same things when dealing with control most of the time. Your personal income is cash based accounting so when you receive the income or expenses is when you take it into account for taxes. This makes sense for this to be treated like this
A business can be a calandra or fiscal year tax payer. A business can choose cash or accrual based accounting. Over 90% of all business choose accrual based accounting. For accrual accounting you recognize the income and expenses as they become certain even if they have not been paid or received yet. So the business recognizes the income as soon as an order is placed. They also recognize the expense when it is committed or agreed too.
Using your example of two weeks of wages the business recognizes the expense each day the employee worked. This is a liability to the business and they own the money to the employee for the day they worked. The pay check to the employee is just the accumulation of the build up wages for that employee that are finally paid in accordance to their payroll policy. The employee does not earn the income until they are paid.
This can be seen more clearly at the end of a year. If an employee works the two weeks before the end of the year the company if accrual will take the expense that year regardless of the year it is paid in. If the date on the employees check is December 31 this amount is included that that years W-2. If the check is dated January 1 then the two weeks wages are on the employees following years W-2.
If the business was instead a cash basis tax payer then the would recognize the expenses for the wages you in the year that they are paid. They would recognize income in the year it is received.
Maybe HiveOS will provide a 1099?
Better guidance from the IRS than a notice and FAQ would be helpful.
How is your identity connected to your mining operation?
You buy a miner, connect it to a pool and the pool sends your coins to a wallet.
If the wallet is private then your identity is not connected to those coins right?
So you can buy stuff without paying taxes?
Or you can transfer to some KYC operation, trade for cash and pay taxes at that time?
I agree, but I doubt they will provide it. Guidance will
Come through court cases and appeals
This is a great way to get in trouble. At least in the US.
When a coin is minted it becomes part of the blockchain. The blockchain records all movement and you can also find the entire amount held in a wallet. At any time a coin hit anyplace with KYC you have created a trail that can be followed electronically and physically back to the point it was created. People make mistakes and leave a much larger digital and physical fingerprint then they think they do.
Tax and law enforcement agencies can track the movement of crypto.
In the end people will do what they do and think they can do. Breaking the law is still breaking the law even if you don’t know you are breaking the law.