2018 Taxes on Trades - Boooo

[AppleMiner]

And the moment you get those coins sent out to your wallet, you have earned $$$. You now owe taxes on money you have earned.
IF..you sell those coins down the road...they you also owe capital gains tax...if Im not mistaken, you subtract the intial value you paid the tax on vs the final sales price and the difference is what you owe capital gains on...over and above what you already paid for in income taxes at the time the coins were generated using an equivalent USD conversion. No sell of coins need ever be made, no deposit into any fiat system bank or paypal. Technically, as I understand it, the very second you make coins...you then owe taxes on it.. Hold that payout for a year + 1 day and you owe LESS than if you seld or traded that coin in the first year of it being given to you to hold onto. But no matter when or even IF it is sold..You owe in the US at the time its made.

[overlordx]

I am an attorney in Florida and a miner. I wrote a short article on my website about taxes on mining rewards. The link is centralfloridaattorney.net/cryptocurrency-mining-rewards/

I need to verify whether Congress approved a particular Bill, but if they did then there will be a "de minimus" exemption (i.e. less than $600) for gains on cryptocurrency. I will need to get a letter ruling from the IRS to get an official position on whether the $600 limit applies to mining rewards.

Note: I did make a request for a website update to allow data to be generated for tax reporting. It should be fairly easy to implement and would make all of our lives easier.

[Aura89]

And the moment you get those coins sent out to your wallet, you have earned $$$. You now owe taxes on money you have earned.
IF..you sell those coins down the road...they you also owe capital gains tax...if Im not mistaken, you subtract the intial value you paid the tax on vs the final sales price and the difference is what you owe capital gains on...over and above what you already paid for in income taxes at the time the coins were generated using an equivalent USD conversion. No sell of coins need ever be made, no deposit into any fiat system bank or paypal. Technically, as I understand it, the very second you make coins...you then owe taxes on it.. Hold that payout for a year + 1 day and you owe LESS than if you seld or traded that coin in the first year of it being given to you to hold onto. But no matter when or even IF it is sold..You owe in the US at the time its made.

If this is a reply to me, i just re-read what i wrote and it's not what i intended to say. I was replying to the guy i quoted about him saying since we multi-mine, the trading that prohashing does, would be subject to trade taxes on us miners. I'm not sure that is correct though, since us, the miners never see or have control of those coins. The only taxes we should be paying from prohashing specifically is the mining income in the currency we have chosen, so that is what we physically get paid with. This is to my knowledge anyways.

[AppleMiner]

yes that should be correct only once you take control of the coins, how they are shuffled before you are paid out isnt your concern and you dont do the trades you as a miner we should never be subjected to short term capital gains made on trading to receive the coins, only once you have them in a wallet from that point going forward. As I have been reading it, but things change all the time, Im still waiting to sit down and try to go over all this and have the IRS not laugh at me.

[overlordx]

yes that should be correct only once you take control of the coins, how they are shuffled before you are paid out isnt your concern and you dont do the trades you as a miner we should never be subjected to short term capital gains made on trading to receive the coins, only once you have them in a wallet from that point going forward. As I have been reading it, but things change all the time, Im still waiting to sit down and try to go over all this and have the IRS not laugh at me.

This is a complicated business model. The rules for mining pools are yet to be written, but there are complications for both scenarios. (e.g. Mining Pool owns the mined currency verses Miners owning it). Think about a mutual fund. Fund managers buy and trade during a year and the fund receives dividends. The people who own shares in the mutual fund owe taxes on the gains and dividends. If the Miners own the mined coin then the situation would seem to be the same.

Another issue to consider is without Form W-9s from the Miners how is the Mining Pool going to issue 1099s?

[investmentgroup]

I'm not an accountant or tax attorney, so take this for what it's worth. Here is what I've been doing since 2014.

I use bitcoin.tax. They have 3 sections, Trading, Income, Spending.

For Trading, I import my trade data from the trade API's to suck it off the respective exchanges. In 2016 I had over 15k trades. Tracking this manually would have been very prohibitive. Fortunately, many of the exhanges have API's that bitcoin.tax can suck the trade data from. On the site you can choose if you'd like to calculate using 1031 "like kind" method which treats coin/coin as a taxable event or not. If you choose not and you do a coin to coin trade, it's a taxable event. I'm not using the 1031 accounting for coin/coin trades just because that was the guidance when I started and figured I'd stick that way. I have seen articles claiming for next year that crypto has been explicitly excluded from 1031. This doesn't impact me b/c I've never used the 1031 accounting for crypto trades. Trades are taxed as capital gains.

For Income, I enter the wallets that I request payments at. I am currently using LTC, BTC, BCH, and DASH. The wallets I use for mining have only mining as inputs. So it's safe to point at these and all inputs are mining income. Mining is taxed as ordinary income. For mining, I do not consider the coins mine until they're paid to a wallet i control. I think of it like my accounting for services I provide. I may invoice a client, but do not account for the income until it is received by me. I think of my account balance on pools as an invoice or hours reported. I am providing hashing power to a pool operator who then pays me for my contribution. So like others have indicated, I do not see a need to track actual coins mined because I get paid for providing hashing power to the pool, not from earning block rewards. I've seen ProHashing is intending to issue 1099's next year. I'm concerned with how this may affect or interfere with how I'm already accounting and therefore intend to mine somewhere else starting today until I have a better understanding of their intentions for 2018.

For Spending, it is also taxed as a capital gain. Therefore, when I buy something with crypto it is taxed similar to a trade only I'm getting a good or service instead of another currency.

After entering all this data there is a Calculate tab which shows you your gains. This is where you can choose 1031 accounting or not. They will also let you pick a strategy for sold coins, First In First Out, Last In First Out, Lowest Price First Out, etc. Then on the Reports tab you can see your total income for the year to report for your ordinary income reporting as well as a closing position report for what coins you're still holding, etc. You can download your trade data here as a TurboTax or Form 8949 statement.

Anyways, like I said I'm not an attorney or accountant, so take it for what it's worth. Just thought it would be helpful to share what I'm doing.

[rootdude]

I think the USA is going to see an exodus of people involved in crypto over the tax laws.

Same thing was said over TRUMP being elected. Of all the people who know..how many left for Canada?

Well, the canadian immigration did crash due to too much traffic the day after election day.....

You can always choose what coins to HODL, but the pool will not HODL them for you. The pool is not designed to be a bank so they still need moved once they are more than $5 over the default threshold limit.

If im not mistaken you have to pay taxes on the coins the moment they are created. Not when they are traded, or sold into your bank.
You then pay the difference once they are sold from what you paid when they were created.
That way, even if you misplace, lose, have the exchange steal them, or get jacked....Uncle Sam still gets his taxes money.
If you never sell the coins or use them in the meantime without reporting they were used/sold....you should have still paid taxes on them when they were made. Unless you aren't reporting that(withouting tax info=federal offense) But I mean if you are running a legit company shouldnt be any issues.

Im no tax lawyer but my lawyer said, "Any Trade for one coin to the next will require reporting and is subject to taxes" The amount Percentage is still up in the air. Also each transaction will be taxed separately. So, if you make $10 on one trade and lose -$20 on another, you still owe a percentage on the $10. Nothing is cumulative anymore. Sucks right? ProHashing multipool presents a problem since I am mining 100 different coins a day thanks to PH programming, and get a payout for BCH... the shared mining of VERT received a value, then was traded for BCH... The Trade is subject to Taxes. And if I HODL BCH, no other taxes will occur. If I mine VERT, LTC, XVG, NYAN... etc --> its traded to BCH, daily that's more paperwork.

I may be incorrect, but i don't think we, the users at prohashing would be subject to tax on the random coins we mine in a multi-pool, as i never see those coins, i never had possession of those coins. Those coins went directly to Prohashing, they did the trades, and i received payment for my miners work in my chosen currency.

I have to say I'm leaning in this direction as well - and because I HODL the coins I receive from here, I don't have liability until I sell them just like any other investment that has cap gains implications.

[Steve Sokolowski]

Here is something which may be helpful to customers who are working on taxes. We may make a sticky notice of this in the future.

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Our view is that mining pools rent computer systems from customers and pay customers for the usage time of those systems. We assign the computers the work they are to perform and the customer has limited or no input in the exact work they receive. We use the computer systems to try to make money and pay customers at a promised rate that is targeted to be less than we can earn with the computer systems.

What happens on the backend to the coins that are mined and in our accounts is not relevant or entirely visible to the customer. Some shares don't find blocks and therefore are worthless, and others find multiple merge-mined blocks. Some coins are sold, others are bought, some are neither bought nor sold, and on 45% of days we have a shortfall and sometimes need to take money from our own bank accounts. There are transaction fees, exchange fees, and the like. The customer never has control of any of the money that comes into existence from mining in a pool. Our returns may be tens of thousands of pages because they will be based upon 1 terabyte of financial data of everything going on behind the scenes. The rate paid to the customer is not related to the work the customer actually performs because everyone contributes to the pool's profits and miners are assigned to the coins that are best for their specific equipment.

To the customer, the only money they ever possess is the small amounts they are paid for each share. The 1099-MISC forms that will be issued are simply the sum of the value of all the shares at the time they are mined. This is the total value that we paid customers in exchange for the computer systems they are renting to us.

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We can't provide advice on how customers should use this information, but hopefully this helps everyone understand what will be on the forms and how we will be improving our legal compliance tomorrow.

[investmentgroup]

Here is something which may be helpful to customers who are working on taxes. We may make a sticky notice of this in the future.

-------------------

Our view is that mining pools rent computer systems from customers and pay customers for the usage time of those systems. We assign the computers the work they are to perform and the customer has limited or no input in the exact work they receive. We use the computer systems to try to make money and pay customers at a promised rate that is targeted to be less than we can earn with the computer systems.

What happens on the backend to the coins that are mined and in our accounts is not relevant or entirely visible to the customer. Some shares don't find blocks and therefore are worthless, and others find multiple merge-mined blocks. Some coins are sold, others are bought, some are neither bought nor sold, and on 45% of days we have a shortfall and sometimes need to take money from our own bank accounts. There are transaction fees, exchange fees, and the like. The customer never has control of any of the money that comes into existence from mining in a pool. Our returns may be tens of thousands of pages because they will be based upon 1 terabyte of financial data of everything going on behind the scenes. The rate paid to the customer is not related to the work the customer actually performs because everyone contributes to the pool's profits and miners are assigned to the coins that are best for their specific equipment.

To the customer, the only money they ever possess is the small amounts they are paid for each share. The 1099-MISC forms that will be issued are simply the sum of the value of all the shares at the time they are mined. This is the total value that we paid customers in exchange for the computer systems they are renting to us.

-------------------

We can't provide advice on how customers should use this information, but hopefully this helps everyone understand what will be on the forms and how we will be improving our legal compliance tomorrow.

I suppose based on this I could just mine to different wallet addresses for prohashing than for other pools to keep them separate so the reporting does not overlap.

[AppleMiner]

Here is something which may be helpful to customers who are working on taxes. We may make a sticky notice of this in the future.

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Our view is that mining pools rent computer systems from customers and pay customers for the usage time of those systems.


......This is the total value that we paid customers in exchange for the computer systems they are renting to us.

So for my apartment....I RENT from my landlord. That makes me the rentER...and him the rentEE.
The landlord is the one providing the service, and as the renter I am the one taking him up on that service as a customer.

So from your definition of mining pools renting systems....does that make you our customers and US the ones providing the service? I thought the service provider was the one that offered the service and the customer was the one who decided if they wanted to partake in that service.
The way that is phrased I am read that as the POOL is renting OUR machines. That means WE are providing the service. I dont have any licenses to operate any such service in my state. Do I need to charge you taxes for using my service?

I think it should be...the mining pools provide a service that allows customers to exchange hashing power for coin payouts for a fee.
I've never been contacted by any of the pools about renting my hashing power. I used to go to nicehash all on my own.

Is the pool setting itself up as a service or as customer? Im a bit confused from those statements.
Could you rephrase or explain that a bit better please.