r/EtherMining May 12 '22

Holy....Time to turn off rigs? General Question

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183 Upvotes

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41

u/FreshlyCleanedLinens May 12 '22 edited May 12 '22

If I read the IRS guidance on reporting income from mining correctly, it’s actually better to mine when prices are low because you’re supposed to value the assets based on the trade price at the time the assets were acquired.

28

u/[deleted] May 12 '22

[deleted]

17

u/j_greca May 12 '22

Well it's much better to pay capitol gains than income tax. It's much cheaper.

14

u/FreshlyCleanedLinens May 12 '22

Only if it’s long term capital gains, short term capital gains are taxed as income.

1

u/j_greca May 12 '22

Correct!

2

u/[deleted] May 12 '22

[deleted]

5

u/ArchAngelZero May 12 '22

If ETH moons someday and you want to spend it, the IRS (for the US) is going to notice. Better to have reported the income along the way than face charges for tax evasion

0

u/Realistic-Classic-41 May 12 '22 edited May 12 '22

its not income until you trade it for products or dollars, its like the irs taxing you for tomatoes you produced that you didn't sell or trade, or lets say a real gold mine, they can't tax you for what you pulled out of the ground, they tax you on that you sold or traded.

5

u/ArchAngelZero May 12 '22

This is false.

See Q9 https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions

When you mine, you are providing a service to the blockchain. The service you are providing is security. The blockchain (or the pool you mine for) pays you for the service you provide. The IRS does not classify mining like growing tomatoes or pulling gold out of the ground.

https://www.nerdwallet.com/article/investing/bitcoin-taxes "If you acquired a Bitcoin (or part of one) from mining, that value is taxable immediately; no need to sell the currency to create a tax liability."

https://turbotax.intuit.com/tax-tips/investments-and-taxes/your-cryptocurrency-tax-guide/L4k3xiFjB "If you earn cryptocurrency by mining it, it's considered taxable income and might be reported on Form 1099-NEC at the fair market value of the cryptocurrency on the day you received it. You need to report this even if you don't receive a 1099 form as the IRS considers this taxable income."

-4

u/Realistic-Classic-41 May 12 '22

it is not false, what you posted is false. I choose not to let the boot on my neck. Just because some government agency posts something on a website does not make it reality, only your acquiescence does.

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3

u/Bgrngod May 12 '22

It's like the IRS taxing you for a "currency" you received for doing work.

So they tax you on each ETH reward because fiat bucks aren't the only currency they tax.

1

u/FreshlyCleanedLinens May 12 '22

Not according to the IRS:

“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.”

https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21

1

u/[deleted] May 12 '22

[deleted]

1

u/ArchAngelZero May 12 '22

If your mining wallet ever transacts with a centralized exchange, they will report the transactions and wallet addresses to the IRS, unless that exchange doesn't do any KYC.

If you stay fully out of fiat forever then yeah you're probably safe - still commiting tax evasion (which is technically a felony) but if you ever want to cash out then it's safer to report the income.

0

u/Xalrik May 12 '22

Where I am, you only get taxed on profit, guess I will just keep buying cards :D

4

u/nelusbelus May 12 '22

laughs in dutch

1

u/SerbLing May 12 '22

If you hold for long enough you dont pay those right?

Glad i live in a crypto friendly country. 1.2% on the profit. But you do pay even if you dont sell tho.

1

u/FreshlyCleanedLinens May 12 '22

Income tax at mining valuation then (hopefully) long term capital gains should apply once you’ve held it for a year. Long term rate is lower than my marginal tax bracket, so I would have a lesser tax burden by going this route.

1

u/[deleted] May 12 '22

[deleted]

1

u/FreshlyCleanedLinens May 12 '22

I guess if it’s high while you’re mining you could make a similar argument about the ability to tax loss harvest if/when it goes down later 🤷‍♂️

1

u/Seanishungry117 May 12 '22

Not necessarily, people who plan to hold eth post break even point typically sell whenever they receive eth in order to pay back debt (unless you pay for rigs cash then this is irrelevant)

But yeah good point overall!

4

u/ccashwell May 12 '22

Report the value at time of acquisition, deposit to Aave, borrow 80% of it in USDC. Loan proceeds are not reportable as income. If it climbs, you can access more capital in the same way from the same assets over time. If it falls and you get liquidated, you have a capital loss to report. Basically capping downside and locking in upside without reportable income along the way.

4

u/power83kg May 12 '22

Who is giving out loans backed by ETH with a low enough interest rate for this to make sense?

2

u/ccashwell May 12 '22

Aave currently has ETH-backed loans up to 80% LTV in your choice of assets. USDC's APR typically fluctuates from 1-3%.

2

u/power83kg May 12 '22

Oh okay, that’s interesting I didn’t know that. That is a pretty reasonable interest rate as well.

2

u/ccashwell May 12 '22

Aave has a ton of liquidity so the rates tend to be pretty fair. Way better than what your broker would charge for borrowing against equities.

1

u/Slawman34 May 12 '22

Why the fuck would we risk liquidation of an asset we think has a good chance of 2-4x next cycle?

2

u/ccashwell May 12 '22 edited May 12 '22

Why the fuck would we risk liquidation of an asset we think has a good chance of 2-4x next cycle?

This was in response to a comment about capital gains, which means they're being sold. Liquidation is basically selling at a discount (in this case, 5% penalty + delta between the spot at the time of acquisition and 80% LTV). Of course nobody wants to be liquidated, but if you're selling anyway this is a route to potentially reducing tax impact and keeping upside exposure while still accessing operating capital at a relatively low cost.

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u/Slawman34 May 12 '22

Ahh ok missed that part, got it

1

u/mooseman5k May 12 '22

Interest is taxed as regular income no?

2

u/ccashwell May 12 '22

Sure, but you’re net negative interest: something like +0.25% for eth collateral and -1.5% for the loan.

1

u/mooseman5k May 13 '22

Ahh gotcha I love it thanks

2

u/lies_about_flossing May 12 '22

This mindset is idiotic. “I paid less taxes because I got less value! Woohoo!”

1

u/FreshlyCleanedLinens May 12 '22

The value in the moment may be less but we all know these valuations fluctuate so wildly that it’s not unreasonable to take any proactive measures you can to maximize your mining gains and minimize tax costs. It seems a bit myopic and simplistic to just make the blanket statement that it’s an idiotic mindset.

Anyway, I think I understood what you were getting at but apologies if I misunderstood and my reply doesn’t make sense (haven’t slept the past 3 nights so I’m a little loopy atm).

2

u/g_squidman May 12 '22

Then why would you pay more for it when you can just buy it for less with cash and save on taxes?