Hey I built 2 mining rigs a couple months ago totaling around $12k in expenses that should generate an estimated yearly income of lets say $6,000 although its extremetly variable. If I wanted to setup a Sole Proprietorship for this business is there a way to defer the expenses into the next year? For this year I would only have around $1,800 in revenue with around $400 in electricity cost to deduct and want to see the best route to take to pay less taxes in 2022. If I am not able to simply defer it another thing I was thinking of is not creating the SP till January 2022 and expensing it then since I beleive I can add in previous business expense even if the reciepts show they are purchased in 2021. I know I'd then lose out on any deductions this year but it would be worth it for next year. Please let me know if either of those options work or if there is a better option.
What are you mining? Coal? Copper? Cryptocurrency? You are very focused on what you are doing, but there are many kinds of mining, and we don't know anything about you or your business except what you write in your post.
You don't "set up" a sole proprietorship. If you personally received some revenue and paid some expenses, you have a sole proprietorship. Whether any expenses can be deferred depends on what the expenses are. The cost of electricity cannot be deferred. If you purchased equipment you might be able to defer part of the cost by depreciating it over a span of years.
You should sit down with a local accountant to discuss the best way to organize your business and how to handle the bookkeeping and taxes.
The accountant will be able to advise you about your options for deducting the cost of the equipment. What options you have will depend on the types of equipment and the cost of individual items. I don't think there's any way that you can defer it and then deduct the entire cost in 2022. It will be either deduct it all in 2021 or spread it over a period of years. But the accountant will be able to give you all the details.
Mining crypto is a brand new situation and the IRS has little to no guidance on this matter at this time. Usually crypto is capital assets however it can also be income ... hobby or business thus one answer cannot be given. Once you figure out what you are doing then the rules for that path need to be filed.
If you do end up calling it self employment then you can depreciate the assets ...
If you are new to being self employed, are not incorporated or in a partnership and are acting as your own bookkeeper and tax preparer you need to get educated ....
If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-NEC for some of your income but you need to report all your income. So you need to keep your own good records. Here is some reading material……
IRS information on Self Employment….
Publication 334, Tax Guide for Small Business
Publication 535 Business Expenses
Home Office Expenses … Business Use of the Home
Publication 946 … Depreciation
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C. You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire. You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040. The SE tax is already included in your tax due or reduced your refund. It is on the 1040 line 57. The SE tax is in addition to your regular income tax on the net profit.
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017 SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.
OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button
You need to sit down face to face with a local tax pro. For starters, the IRS has next to nothing in guidance on this. For example, are you self-employed and would therefore report the income on SCH C? Or, since all you do is "sit there" doing nothing while the mining computer processes work units and making money, (you hope), is the income passive and therefore reported on SCH E? I am not qualified to provide an answer to those questions. So you need to talk to a professional that you can hold personally culpable and legally liable for the information they give you.