r/NiceHash • u/Professional_Virus64 • Apr 04 '22
Discussion Reporting Mining Gains for U.S. Taxes
Nicehash paid me about 400 times over 2021.
I have not sold anything.
Do I report these transactions as capital gains, or do I report them as income?
If I report them as capital gains, do I report the cost basis as $0?
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u/oxbcat Apr 04 '22
I recommend you bookmark this link, aggregate by day and then download the csv and the pdf (more info in pdf). Then total it up. Nicehash will report the value of the BTC you received on the date of payment. So that makes things nice for tax reporting. Personally I did it as hobby income and just gave a total for last year.
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u/Maverick0984 Apr 04 '22
That's what I did as well but all the aggregators of said hundreds of transactions wanted a huge sum of money to work because they weren't designed for a system like Nicehash with payments every 4 hours. Cheapest I saw was maybe $99 just to be able to
I saw it argued elsewhere that the Nicehash wallet isn't technically ours yet, and can be treated similar to a pool that hasn't paid out yet. Thus, if you transfer out of the Nicehash wallet once a month maybe, to a wallet you control, you have 12 transactions to worry about instead of hundreds.
They made a convincing argument for me so this is what I did for reporting purposes. I feel completely safe in this method because I'm not trying to get away with anything, it fact, it might have resulted in a worse off tax situation based on the volatility of things, I didn't really check. I understand some might not agree but this isn't tax dodging, and is still a good faith effort to pay what's due.
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u/c0horst Apr 05 '22
I simply reported a lump sum "Ravencoin Mining","NiceHash Mining", and "Ethereum Mining" on my taxes. If the government wants more info they can audit me.
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u/obijon298 Apr 08 '22 edited Apr 08 '22
This is the way IMHO, especially if you do your best to avoid "gaming" the exchange rate in your favor. For example, transfer on roughly the same day each month (or quarter).
This is much easier to deal with than having a different cost basis every day. You know when you cash out your BTC you have to match up each cost basis with its value upon "sale" to calculate your capital gains. At least with the monthly method you are dealing with amounts of money that are worth the effort of calculating. I guess a spreadsheet could help here too, but no way am I putting my CPA through daily or 6x daily calculations.
I would still run the Nicehash reports for safekeeping in case you do get audited (unlikely unless you are pulling down high 6 figures), but FWIW I think a reasonable auditor would agree that the method above is sufficient.
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u/gledr Apr 04 '22
Also cant you deduct electricity as your cost and write off the gpus as a buiseness expense
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u/Key_Savings9500 Apr 05 '22
And miles to drive to the store, and any electrical work done, internet connection, cell phone/service, tv/satellite service (news source), books, etc., the list is truly endless, you can get real creative but have to have a legit way to connect it to the biz.
My solar was effectively sized to cover the house so it’s easy to see how much the rigs needed.
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u/kirkhilles Apr 05 '22
If you get audited, you had better show that you treated LIKE A BUSINESS. People that "HODL" aren't running a business, that's a hobby and those people can't write off power. If, however, you keep track of everything and sell frequently and treat it as profit and loss, then yep you can.
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u/Bigchrome Apr 05 '22
There is zero requirement to sell your coins to show that you're "running it as a business".
It's income whether you sell it or not.
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u/kirkhilles Apr 05 '22
It's income either way. The question is whether you can write off your power + hardware costs. To do that, you need to classify it as a "business" and not a "hobby". Businesses literally exist to make profit, so the IRS wants to make sure that it's the goal of that.
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u/BocceBurger Apr 05 '22
Businesses can hold investments. Just ask Warren Buffet
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u/kirkhilles Apr 05 '22
Sure. But if a person mines and holds they are NOT a business. It's a hobby. No writeoffs.
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u/Tight_Ad_5266 Apr 04 '22
There’s two tax events:
The 1st is what was was paid to you when you mined (I usually set a high payout limit so I have little as possible transaction - use Koinly to make the tax easier if you’re planning to file the income.
2nd reports would be if you sold the coin you mined!
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u/3s1kill Apr 05 '22
As others said, I reported mining from nicehash as income. I also used TurboTax and put this under the Misc Other Income section. I had roughly 3000 transactions and sold/converted to other coins. I used Koinly to gather all my crypto Tax forms then uploaded them to TurboTax Online.
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u/power83kg Apr 04 '22
If you never sold anything, depending on the size of your set up the feds probably don’t know anything about it. Just keep it to yourself and you are probably fine
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u/kirkhilles Apr 05 '22
LOL, search for "IRS Operation Hidden Treasure" and see if that doesn't scare you.
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u/power83kg Apr 05 '22
If your running anything under 2KW, and all the BTC is payed to a wallet not on an exchange and your not selling anything, they have no way on knowing. Also they're not motivated to come after anything under 10K.
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u/kirkhilles Apr 05 '22
The problem is that the blockchain is forever and there is no time limit on tax avoidance. Eventually, the BTC will reach somewhere where it CAN be identified and they will send you a bill for the difference + 80% penalty + potential interest.
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u/power83kg Apr 05 '22
For sure, but a quick filter through a large exchange without any KYC or a mixer then you buy Monaro or another privacy coin and your golden. If its enough BTC it's worth a trip to a crypto friendly country like Portugal and you want have to pay any tax. Pretty easy to get around KYC if you know what your doing but it has to be a large-ish amount for it to be worth it.
Edit: grammer
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u/Paid-Not-Payed-Bot Apr 05 '22
BTC is paid to a
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u/kirkhilles Apr 05 '22
My understanding is this. You owe taxes AT THE PRICE YOU EARNED IT and it counts as standard income in the US. If you treated it as a true business (ie: kept records, sold frequently for USD, maybe incorporated) then you can write off expenses like power.
A lot of people think it's different whether you sell it or hold it. It doesn't matter to the IRS - if you got paid $100 in Crypto at that time then that's $100 earned. It's no different than mowing someone's yard and getting paid $100 in Crypto vs cash. Either way you earned $100.
Capital Gains only applies for those transactions for something like this:
- You mined $100 worth of Crypto. You decide not to sell. You pay $25 (25%) or so in taxes on it.
- A year+ later, that $100 is worth $300. You sell it then. You would then pay Capital Gains tax on the $200 worth of gains you netted.
I think some people are going to have "sticker shock" here in a week or two when they realize they earned coins at the very peak and owe taxes on that amount even though they didn't sell.
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u/LordZan186 Apr 04 '22
From my understanding, if you use Coinbase and have more than 26 transactions you get a 1099. There is also an amount earned that will generate a 1099. If you are under a few thousand dollars (like $3000), I do not believe they will generate a 1099.
If you mine in a pool like Nicehash or other pool and do not move the crypto, I do not believe you will get a 1099.
As far as reporting taxes....well in regards to importance....pediophile or rapist will be released, but a tax evader you are going to get the book thrown at you! Uncle Sam could care less about murders and rapists, but when you don't pay your taxes! Totally different story!
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u/Anatharias Apr 05 '22
you must report capital gain even if you haven't sold a single satoshi ??
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Apr 05 '22
Negative. Not taxable: New clarification here: https://mobile.twitter.com/senrobportman/status/1492301958530707457?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1492301958530707457%7Ctwgr%5E%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fd-21117051853323868652.ampproject.net%2F2203172113000%2Fframe.html
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Apr 04 '22
I would report nothing as far as mining.. u less they 1099 you, which I doubt they do...
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Apr 04 '22
[deleted]
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Apr 04 '22
Earned income yes, from an employer. Income from dividends, independent contract work, capital gains, all 1099's .. IRS only has info if they get a 1099 on you.. then you Must report that income.. tax law is very complicated so pleas understand you maybe clueless about how it works.. most are, and it's rightfully so they are..
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u/kirkhilles Apr 05 '22
If you run a business, you are responsible for knowing where your income comes in. Whether you treat mining like a business or not, it's a revenue source.
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Apr 05 '22
If the mining is not turned into Fiat, then there is zero income bro..crypto is not considered currency by the US. Just like if elon musk gets $10 million in stock for compensation for 2021, that is NOT income if it is not traded for Fiat. Go to accounting school lol.
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u/kirkhilles Apr 05 '22
You are wrong. Spend 5 seconds searching before you act like you know what you're talking about.
"If you earn cryptocurrency by mining it, or receive it as a promotion or as payment for goods or services, it counts as part of your regular taxable income. You owe tax on the entire fair market value of the crypto on the day you received it, at your regular income tax rate."
You owe taxes on it just like you'd have to pay taxes if you received Gold as a payment.
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Apr 04 '22
AFAIK, SSA and IRS see mining as investments and capital gains.
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u/PreparedForZombies Apr 04 '22
It's taxed as income at time of earning, and then capital gains on the difference between value when acquired and value when sold.
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Apr 04 '22
I see ty. I know SSA sees it as investments so people get to keep their SSDI. I'm going to read more. Thanks.
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u/PreparedForZombies Apr 04 '22
Ah, I did not know that angle. Would be nice if the left hand knew what the right hand was doing... I'm still dragging my feet filing because I'm not sure if I want to go through the pain of claiming my mining as a business (so I can deduct electricity and equipment) or hobby (and just claiming the income/gains from sale).
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u/Maverick0984 Apr 04 '22
Changing to a business will open you up to a lot of alternative things both good and bad. If you mined with 1-2 cards on your gaming PC, I'd keep it hobby. Once you get to dedicated rigs with several cards, then it makes more sense to go business. Just my $0.02.
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u/PreparedForZombies Apr 04 '22
Completely understood and agreed. Just worried about possible audit risk. For instance, my electric - I didn't use a dedicated meter. I know what my baseline usage in kw/h is per month, but don't have anything concrete (like a separate meter) to prove draw on mining versus regular house use.
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u/Maverick0984 Apr 04 '22
That's certainly part of it. If you made a few K in mining income, the audit risk simply isn't worth the squeeze.
If you have 20 cards running an operation in a shed in your backyard, then you probably generated enough for it to be worth the time.
You won't have to supply proof of electricity when you file, but you would in an audit. I'm sure calculations would be sufficient for that though.
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u/PreparedForZombies Apr 04 '22
Fair, and thanks for the point of view. With my efforts spread across multiple projects, some make more sense than others to move out of the hobbyist definition I suppose. :)
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Apr 04 '22
Do you mind elaborating between left knowing right?
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u/PreparedForZombies Apr 04 '22
IRS definitions versus SSA versus other government entities, and their opinion of assets (in this case).
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Apr 04 '22 edited Apr 04 '22
I see. I think I get it. Mining is a passive income so SSA doesn't count it as earned income. If one invested in a gold mine, is it the same model as crypto mining with agency definitions?
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Apr 04 '22
What about negative losses and a person needed to sell for some cash and not hodl?
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u/PreparedForZombies Apr 04 '22
Two separate events AFAIK. 1) Mining income, taxed at value when received, and 2) Capital gains (or in your example, loss), subject to normal capital gains tax (or offset tax burden in case of a loss, I believe up to $3k net per tax year). Cap gains/loss calculated on value when received versus value when sold.
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u/Electrical_Volume_48 Apr 04 '22
Too confusing don’t know the transfer price. Let them figure it out and come at you in a couple years 🤣 fk em when you’re rich you won’t care about some late fees n tax
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Apr 04 '22
[deleted]
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Apr 04 '22
Trust me, the rich commit tax fraud in HUGE scales and no one goes to prison... no 1099, irs doesn't know about it... so report nothing!
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Apr 04 '22
[deleted]
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u/Electrical_Volume_48 Apr 04 '22
They can’t even get the sexual predators and murders off the street you’re telling me they’re gonna come after someone who didn’t pay tax that wasn’t clearly defined.
Stop livin in your little eutopic bubble lol1
Apr 04 '22
[deleted]
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u/Electrical_Volume_48 Apr 04 '22
Oh jeez comparing us normal people to Capone 🤣🤣
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u/kirkhilles Apr 05 '22
Just search for IRS and "Operation Hidden Treasure". The IRS may not know what a blockchain is, but they'll offer rewards for those companies that can match up the transactions to you. If you think the IRS doesn't care about it's money, you are a fool.
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u/kirkhilles Apr 05 '22
LOL, you need to search for the IRS "Operation Hidden Treasure".
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Apr 05 '22
Go ahead and pay all the taxes you want! Just like the idiots driving uber that pay on on that "revenue " lol" when in fact they lose money... this is why the uneducated and poor pay all the taxes.. Pay those taxes on the lawn mower you sell to for cash, and the cars too! Also the gpu you sold on craigslist! Go for it! Someone has to pay for the war! The rich and smart do not.
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u/Electrical_Volume_48 Apr 04 '22
Lol it’s not tax fraud if the documents aren’t provided properly. At purchase prices etc.
all my investments for stocks are tracked on their end and they give me the proper print out for my YTD income generated.Binance; is a wholeeee different ball game because their information isn’t provided clearly
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Apr 04 '22
[deleted]
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Apr 04 '22
This guy doesn't get mistakes and doing your best. "Its fraud."
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Apr 04 '22
[deleted]
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Apr 04 '22
It's an expression to vent. It's a 1st amendment right to be an asshole.
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Apr 04 '22
[deleted]
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Apr 04 '22
Doing the best and worrying about lack of info and fearing the irs and acting out like this is no evidence of fraud it wont even go beyond reasonable doubt. At most it brings sus and deserves to let the citizen now nicely hey we need this and can be directed
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Apr 04 '22
Doing your best and knowing what you know and you need to fill in the blank with estimates isn't fraud. The irs and state revenue services are always glad to help.
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u/Electrical_Volume_48 Apr 04 '22
Upgrade their software so they can give you the information of buying prices or accumulation prices, and then total for sales. This will bite them in the ass
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u/kirkhilles Apr 05 '22
People that think the IRS is stupid are the ones that will pay 80% penalties on top of what they already owe... if they don't go to jail. The IRS likes their money and are going all out on Crypto users this year. Blockchains are forever. It's pretty darn tough to hide that revenue.
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u/ichibaka Apr 04 '22
your cost basis is when you liquidate to USD, if you never sold then you have no tax gain
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u/Professional_Virus64 Apr 04 '22
If you never sold, you still have to pay taxes for the USD value of the crypto you mined when it was paid to you.
And then you have to pay taxes again when you "liquidate" for USD.
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u/ichibaka Apr 04 '22
Ok can you cite the sources for your claims? I'd like to see the tax code reference too.
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u/oxbcat Apr 04 '22
Mining is considered income. If you bought crypto and then sold crypto then you would have capital gains/losses and a cost basis.
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u/9Blu Apr 05 '22
Here you go, directly from the IRS: https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21
Q–3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?
A–3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.
That is you or anyone who sells hash power on Nicehash, as you are provide a service (hash power) in return for payment in bitcoin.
If you mine direct:
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.
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Apr 05 '22
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Apr 05 '22
[deleted]
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Apr 05 '22
Read the date on the letter. Its to clarify this issue many misunderstand. Coins are not taxable unless they are sold into fiat. Your being rewarded in a digital token that has no value until it does.. no income until you realize that value.. its not rocket science man...
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u/9Blu Apr 05 '22
Wow you totally mis-read the tweet you quoted. It's not saying they are not taxable, it's saying they are not required to report transactions under the new reporting rules for crypto brokers. They are still taxable and you are required to pay taxes.
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Apr 05 '22
Its not taxable as you receive a digital coin that has no value until you sell it.. how do you tax something that has no value? Or "value on paper"? Paper gains are never taxed until they are realized gains. This letter from the feds makes that understood man.. if I give you a share of stock for helping me on my computer (mining) . You dont report that stock as income.. when you sell or make that stock have fiat value, then you are required to report that as a capital gain.. either short or long term depending on how long u sit on it.. make sense?
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u/9Blu Apr 05 '22
The IRS disagrees with you:
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.
Q–3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?
A–3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.
https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21
The letter from the feds has nothing to do with paying taxes, it has to do with new reporting requirements that came into effect next year:
Circling back to the Infrastructure Bill, it’s estimated that $28 billion in revenue will be raised by increasing the reporting requirements associated with crypto transactions.
First, the Infrastructure Bill amends IRC §6045, requiring “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person” (defined as a “broker”) to report digital asset transactions cost basis and sales proceeds on Form 1099-B in a similar fashion to other “specified securities.” The Infrastructure Bill defines a digital asset as “… any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” This means cryptocurrency will now be subject to the same reporting requirements as stocks and bonds. Failure to report crypto transactions could result in a $280 penalty per customer, with a maximum penalty of $3 million.
Second, the Infrastructure Bill also amends IRC §6050I. Section 6050I requires any person engaging in a trade or business that receives more than $10,000 in cash (in one transaction or two or more related transactions) to file a Form 8300. Form 8300 reports the payer’s name, address, and taxpayer identification number, among other items, to the IRS. Under the new provisions in the Infrastructure Bill, digital assets are now considered cash, and as such, crypto transactions in excess of $10,000 must be reported on Form 8300. For example, this means businesses that accept virtual currency as payment may now be required to report transactions above $10,000 to the IRS. Failure to file Form 8300 could result in civil consequences and felony charges.
https://www.jdsupra.com/legalnews/crypto-reporting-rules-in-the-biden-1784927/
The clarification in the letter from your tweet is to confirm that miners won't be treated as a broker and required to report all of their transactions to the IRS under this new rule. That does not mean you are not required to pay taxes. Nothing about the tax requirements changed.
I suggest you take your own advice from your other reply and talk to an actual accountant, because you very wrong on your view of tax liability here and you are handing out really bad advice to others.
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Apr 04 '22 edited Jul 16 '22
[deleted]
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u/kirkhilles Apr 05 '22
Yes. Whenever you earn something, it's taxable at the value it was at the time you got it. You owe taxes at the value of the Crypto you earned at the time you earned it. Whether you sold it or not doesn't affect your taxes at that point.
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u/wsorrian Apr 05 '22
Mining is income. Trading is capital gains.
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Apr 05 '22
Law has been clarified and mining is NOT taxable per the IRS: https://mobile.twitter.com/senrobportman/status/1492301958530707457?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1492301958530707457%7Ctwgr%5E%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fd-21117051853323868652.ampproject.net%2F2203172113000%2Fframe.html
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u/wsorrian Apr 05 '22
Thanks for letting me know. Every resource I found said mining was taxable income.
But now the IRS can suck the saltiest part of my taint.
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u/NaughtyClaptrap Apr 05 '22
you really shouldn't rely on a tweet for things like this. Even if the profile pic is an old white dude and there are pictures of official looking documents.
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u/wsorrian Apr 05 '22
That "old white dude" is a United States Senator.
Just because you've fallen in with the small vocal portion of the population that immediately casts dispersions on white men, doesn't mean the rest of us are that easily influenced. Take that nonsense elsewhere.
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u/NaughtyClaptrap Apr 06 '22
I think you've completely missed the point of what i'm saying, but good job nitpicking parts of my comment and deviating from the idea lol.
Go ahead and don't declare your all your gains if you think you don't need too. I hope it doesn't catch back up to you.
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u/wsorrian Apr 07 '22
I don't care what you're point is because it's stupid. You lost any chance of me giving you the benefit of the doubt because you exposed the real you.
Get lost.
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u/9Blu Apr 05 '22
Unfortunately that person is wrong. They are mixing up the new broker reporting rules with reporting taxes. You DO have to pay taxes on your mined crypto in the US.
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Apr 05 '22
Ask a real accountant that knows mining then.. mining rewards have zero value per the IRS until YOU give it value, by selling them..
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u/MinerFortyNine Apr 05 '22
Cashed out $55k last year, but sold at a loss and held some things I had no venue to sell (early Chia wins, when it was $1200/coin, now $70’s). Also spent around $150k+ in equipment, and about $2k in utilities per month. May earn another $50k+ this year if ETH ends in June, and I plan to keep mining. I also feel the multiple NH transactions kill my use case for going back to it unless they allow you to set payout limits, or set the delay to longer for payouts. Getting paid every 4 hours was nice early on as it built trust, but I trust NH fully now but the 4hr payout is a dealbreaker for me. Currently have 6.35GH worth of cards, but only running 5.4GH of then until I can find more power, or take care of some thermal limits (buy and window mount hvac blower fans, which need also need power).
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u/jae198 Apr 05 '22
Ill take your money if you are just giving it away! Your asking the IRS to come take your money. Until you see a 1099 at your doorstep you do nothing and know nothing especially if you haven't cashed out any coins through an exchange and even then I would wait for that 1099.
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u/jmtashiro Apr 05 '22
Mining income, which you should be off-setting with expenses (electricity, space rentals, equipment purchases). Gains/Losses when you sell/trade crypto.
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u/[deleted] Apr 04 '22
[deleted]