Bitcoin mining machine 2015 tax returns

The Chinese bitcoin mining machine sellers immune to the cryptocurrency crackdown

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Posted by Ryan Lazanis on May 15, Tax season came and went and those involved with bitcoins in had the frustration of having to interpret just how they will include their bitcoin related activities on their tax returns, especially those with bitcoin mining activities. We at Xen Accounting have seen first hand just how frustrating this can be for taxpayers due to the almost complete lack of guidance from the Canada Revenue Agency in regards to how a lot of this bitcoin activity should be treated for tax purposes.

The last, and only, time that the CRA commented on digital currencies, such as bitcoins, happened back in November.

It was only a matter of time before we would receive a bit more guidance, and that came recently in a new CRA technical interpretation regarding the tax consequences of mining bitcoins. The concept of mining was briefly explained in a previous article. Simply put, upon successful mining on the bitcoin network, one is rewarded with a certain amount of bitcoins.

But just how these mined bitcoins should bitcoin mining machine 2015 tax returns treated for tax purposes is one of the causes for confusion at the moment as mining is a completely new concept with no tax legislation to support it. Does it need to be included in our income?

All of these questions were unanswered and open to interpretation. Recently a new technical bitcoin mining machine 2015 tax returns released by the CRA attempts to respond to a similarly confused Canadian resident regarding some of the taxation implications of bitcoins, largely relating to mining. Does the new tax interpretation help give a bit more clarity? Unfortunately, things are still wishy-washy. The tax interpretation starts off by saying that mining activities can either be be classified as a hobby or as a commercial activity.

They point to case law in bitcoin mining machine 2015 tax returns to how one could make this determination. Generally, in commercial activities, you can deduct business expenses. This is not true with a hobby. In most instances, I would expect that if you are getting rewarded with bitcoins for mining, this would be considered a business activity for the reasons explained in this article I wrote back in December.

The CRA says that if your bitcoin mining activities are considered to be a commercial activity, then you need to value your bitcoins at year-end using an accepted inventory valuation method in order to compute your income for tax purposes.

Typically, this would mean you would value your inventory at either the lower of:. This all suggests that you have the option to determine how you want to value your inventory, which are essentially your bitcoins from mined activities, even though they stop short of calling all your mined bitcoins inventory whether mined as a hobby or commercial activity.

The method you choose to value your bitcoins will have direct tax implications. In most instances, the cost method of valuing inventory is preferable for tax minimization purposes. Whatever method you choose, you need to bitcoin mining machine 2015 tax returns consistent.

The IRS recently put out a publication which states that mined coins bitcoin mining machine 2015 tax returns to be included as income in your tax return at their fair market value at the time they are mined. Although the IRS and the CRA are two different organizations with two completely different sets of tax legislation, I would have bitcoin mining machine 2015 tax returns expected the CRA to say something more along these lines.

Instead, we get a wishy-washy response saying that mined coins need to be valued for inventory purposes at year-end. Technical interpretations are nice to have but only if they can actually guide us.

This technical interpretation does none of that in regards to bitcoin mining. Instead, it simply gives us part of the picture and leaves us to bitcoin mining machine 2015 tax returns an illogical explanation with many inconsistencies. Xen Accounting is a completely virtual Canadian Chartered Accountant firm which combines online accredited accountants with innovative software.

Designed for modern day business owners who are always connected and always on the move, Xen Accounting uses cutting edge cloud and mobile accounting technology in order to make your accounting as easy and as convenient as possible. For questions, contact us at info xenaccounting. Classification of mining activities The tax interpretation starts off by saying that mining activities can either be be classified as a hobby or as a commercial activity.

Inventory valuation for mined bitcoins The CRA says that if your bitcoin mining activities are considered to be a commercial activity, then you need to value your bitcoins at year-end using an accepted inventory valuation method in order to compute your income for tax purposes. Typically, this would mean you would value your inventory at either the lower of: The cost at which they were acquired ie. IRS guidance a lot more clear The IRS recently put out a publication which states that mined coins need to be included as income in your tax return at their fair market value at the time they are mined.

Questions that still need to be answered include: The interpretation talks about classifying the mining activities between hobby and commercial. It says what you should do if the activities are considered commercial but makes no mention of what should happen if the activities are a hobby. Many sell them and the CRA has spoken about as either treating them as capital gains ie.

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12 comments

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I was a self-emplyed consultant for years. If you have your mining business set up in such a way that the business pays you a wage to oversee the operation, then you would pay self-emplyment tax on those wages. If mining ETH is an investment in ETH, another way of acquiring that asset, and you're going to pay cap gains, then you wouldn't pay self-employment tax, just as you wouldn't if you were trading stocks in your pajamas.

That's been my experience, anyway. MrYukonC How can you establish cost basis before converting to fiat? Buying ETH directly isn't a good idea either because there is no guarantee that it will go up in the future anyways.

Alot of people have free electricity and they can buy the cheaper R7 instead of the 3x cost R9 So the ROI period you calculated was incorrect. I was around in Spring , and there were gpus flooded on eBay but they still weren't free. I know you went on this rant to scare people so the difficulty doesn't go up, but the truth is, right now its still VERY profitable to mine. And the difficulty will keep going up and up. In the end, unless you have a serious case to make that your mining is a "business", deductions for cost gpu's, systems, electricity, etc.

I'm not impressed with the profits from my first rig. At this rate it will take 4. Not sure if this is worth the heat and noise created, or if it's a genius long term decision. I didn't even factor in loss from electricity, so payoff would be longer. Anyone without an agenda have a good insight? Use claymore's dual miner and the decred will pay your electric bill. Mining is inherently risky.

But also being in the rental business If I had it to do over again I'd probably go with the nanos. I got in about a month ago and it's taken me a lot longer to get up and running than I anticipated. This was just a great springboard. It may work or I may totally regret it I'm not building out with more than what I've got. I have to decide if I'm going to spend any more money on mining, or save everything. Big decision and allot to weigh out.

It looks like you're new here. If you want to get involved, click one of these buttons! Fk the Irs lol. April edited April Also adaseb I'm relaxed enough it's just that these information you see here in mining are the serious stuff that many choose to put aside until it's too late to ignore. Please if you've got things to share on why people should mine, do list it out instead of just targeting me and saying its still profitable in one sentence.

I'd like to read about it to see if I missed anything out. Oh and remember to make sure you tell the whole tale and not just the buttered up half of it.

There's always two sides of the coin. It's only about which is better. In kotarius case tho, you can never win the TAX authorities in terms of claiming tax from them instead of paying more.

For every tax u claim back, you will likely have paid more elsewhere. Nice how the IRS wants to be there collecting tax at just about every transfer isn't it?

They take none of the risk, but always want a cut of the profits. When did the IRS get the right to make arbitrary "rulings" anyhow? Are they a court? Of course, they are always looking out for their own interests, not ours. At some point, someone will have enough skin in the game to challenge the ruling in court. Regarding altcoin taxation rules in the US, there's some off-base stuff going around. Brought this up in another thread a month ago. I wonder just how different the rules are in other countries, but I'm sure China and its endless supply of GPU's and electricity doesn't give a shit.

Remember, you still have the basis income of the mined coin to realize in the year it was mined, whether or not you cashed them in, bought something with them, or converted them to another altcoin. It all has to do with when a taxable event is triggered. When a coin is mined, it is counted as income by the IRS and the cash value of each coin, when mined, is your tax basis.

Coins are classified as a capital asset for individuals, or possibly ordinary income for businesses. While the ruling is still not clear, the quote from the article should make it quite clear: Regardless, mined coins are counted as income in the year they were mined. Wash rules also apply. A second taxable event is triggered when you exchange altcoins for cash, product or services.

Most people won't be able to treat mined income as ordinary like a business, and will be taxed at the highest rate when filed. Unless you like risking imprisonment; don't think this doesn't happen, my cousin is a high-net-worth accountant and has seen what happens for as little as a couple grand.

No, I don't work for. Exchanging altcoins for cash and transferring the money to a bank can and likely will trigger a form, informing the IRS of your activity and tax obligations. I stopped mining two weeks ago. Excluding short-term tax obligations, electricity and a couple gpu's, I've still made a "good" profit.

Continuing to mine for fractions more as time goes by only goes to increase cost basis. I feel bad for those who are forced to continue mining just to cover hardware, and probably aren't even thinking of those taxes that are due or the jail time that may come if they ignore it.

Mining ETH is already less profitable than many people think, like alcohol was post-Volstead, even though it continues to be a thriving "business". Especially if you're willing to ignore tax obligations and risk jail time like Capone.

Have a nice day. The most relevant sections for most people here- and this is straight from the IRS. See Publication , Taxable and Nontaxable Income, for more information on taxable income.

See Chapter 10 of Publication , Tax Guide for Small Business, for more information on selfemployment tax and Publication , Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit. Thank god I live in asia LOL. MrYukonC IRS doesn't give a crap about "tiers", only how big the fish are they want to go after first.

Eventually they get to every level, and back taxes are a bitch. That's just one grey area not addressed by the tax code pubs. I'm going to ping my cousin about it, see if she has any CPU time to figure this out now that tax season is over. Then again, she may not want to look at another tax question for a month or more, if she hasn't already flown to Bermuda I was simply distinguishing in my own terms how I see it hence the use of the term "tiers".

Remember, you're the one who made the claim that people are going to possibly be in for trouble if they try to deduct mining as a business. I've got news for ya -- I already filed my taxes for and paid the taxes for my mined ETH as well as deducted "business" costs related specifically to the mining. The IRS has already cashed the check and we'll see if I hear anything further from them about it. I doubt I will. As long as I'm paying taxes on the mined coins, I'm sure as shit, classifying these video cards that have only mined coins as business assets.

I did it previous years, no different than running a website with ads, of course you will report your server costs. Graphic cards were solely purchased to mine coins, what's to debate. How do I file not as a business, I'm on disability. Just include the fair market value of Ethereum on the day that it is mined into my gross income? Quite a few major news and Ethereum price isn't moving up one bit while difficulty continues to grow. Like I've mentioned before, ROI is not possible factoring in electricity and tax obligations.

Pretty stupid that the I got for litecoin mining years ago is worth as much today as it was when I purchased it. Assuming Ethereum will continue to devalue makes as much sense to me as assuming Ethereum will double none at all - I have no idea what it will do. Also taxes aren't an expense unless you have a positive ROI. If you are paying taxes you already have an ROI, no? There's also no way to know that another coin won't come along that will be as as or more profitable as Ethereum is now.

My point with the is that people THEN were talking about how they would be worthless 2 years ago and they were for awhile. Are you using Nanos? Are your cards worthless if you aren't? The profitability is directly tied to the speculators miners sell to Just like the price of oil.

I am curious about AMD's new release.

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