The hardware I mentioned is the graphic cars and computer I used to "mine" the cryptocurrency. I haven't sold any of the coin I mined yet and I usually make about 1 coin a month, how do I report the income? Is its value determine at the time I received the coin or is it the current market value now? The reason I asked is its market value now is only 1/10 of what it was a year ago. Thanks!
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If you report on schedule C, you must follow the usual rules. Computers are "listed equipment", and additional rules apply unless used 100% for business. Assuming used 100% for business, anything with an expected life more than one year is an asset and must be depreciated.
There are two way of expensing an asset that must normally be depreciated. If your total assets purchased this year are less than $2500, you can use a safe harbor to expense them. Or if more than that, you can use section 179 depreciation to take all the depreciation at once. However, if you take section 179 depreciation, and then stop using the asset in business before the end of the recovery period (5 years) you will generally owe income tax on depreciation recapture.
Turbotax knows about the safe harbor and section 179 and will ask you about them if you qualify, after you list the assets.
You may also run into trouble using schedule C unless you can prove your mining activity is an "ongoing trade or business." Hobby expenses are not deductible, and if the IRS audits you and decides you have a hobby instead of a business, you lose the deductions and owe back taxes and a penalty. There is a 9-factor test here but it is not the only way of looking at your situation. https://www.law.cornell.edu/cfr/text/26/1.183-2 Another test is that if you do not make a net profit (after expenses) at least 2 out of 5 years, the activity is not a business. Ongoing trade or business is also defined in common law. Every case is decided on its own facts and circumstances.
Those factors are (1) the manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisors; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on similar or dissimilar activities; (6) the taxpayer’s history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.
A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. The regularity of activities and transactions and the production of income are important elements. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.
Finally, be aware that mining, and holding the cryptocurrency after mining, creates two different income streams that must be accounted for and taxed separately. As described in the linked article https://ttlc.intuit.com/replies/6416820
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