3 ms·

On that note, I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of a

by SilasX 4y ago

On that note, I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset. The author mentions that oil well already have this issue and so you could just see if their method works. Wikipedia gives a list of the other ways: https://en.wikipedia.org/wiki/Depreciation#Methods_for_depreciation https://en.wikipedia.org/wiki/Depreciation#Methods_for_depre... (I also vaguely remember a lot of people screaming bloody murder about how it's unfair to oil wells to get accelerated depreciation.)

josu 4y ago
> I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset Of course there are, and they should actually be using them. But then fundraising would be harder. They are cheating on accounting, in order to raise equity capital, and hoping that the price of bitcoin will go up in the future and cover the losses.
FabHK 4y ago
> if there are any other (standard) methods of depreciation accounting IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes. There is thus an incentive for firms to tweak depreciation and pull it forward, to either concentrate it in relatively more profitable years, or generally push tax payment further back into the future. To counteract that, tax authorities often specify an upper limit on how much you may depreciate every year. These limits often distinguish by type of asset, and allow for faster depreciation for shorter-lived assets, but I could imagine that the tax code makes no provision for ultra-short-lived crypto mining equipment.
- t_mann 4y ago
  Great point. Most profitable companies try to minimize their taxable profits, and the same rules that are in place to counteract that can have the effect of overstating the profitability of other firms.
- SilasX 4y ago
  > IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes I think that’s overstating it. You’re always going to depreciate to 100% eventually[1], so faster depreciation just means you realize a loss (and reduce the tax bill) sooner rather than later. [1] or sell for actual value, in which case you adjust the books to the actual loss of value which may before or less than the depreciation formula estimated.
  - SilasX 4y ago
    Follow-up: Keep in mind, the depreciation schedules can also understate how fast the good loses value. See also my lay explanation of why depreciation in tax law exists [1] and why it eventually gets resolved on sale or disposal[2]. [1] https://news.ycombinator.com/item?id=15061439 https://news.ycombinator.com/item?id=15061439 [2] https://news.ycombinator.com/item?id=26674984 https://news.ycombinator.com/item?id=26674984
  - FabHK 4y ago
    You're right: with all of that, you're just shifting things around in time, and it resolves when you sell the asset or toss it. This can still have real effects in times of high interest rates, or due to the fact that a loss might give you less of a tax credit, depending on jurisdiction, than a profit generates in tax obligations. Not sure how relevant it is to the issue described in the article: depreciations that are too small, thus front loading profits - but it might be that the tax code prohibits larger depreciations.
    - SilasX 4y ago
      Aren't you allowed to keep separate books for "what we think our book value should effectively be regarded as" vs "what we're required by tax law to say it is"?
anamax 4y ago
Depreciation is only relevant if you keep the asset. If a crypto-miner becomes unprofitable to run, selling it for less than the "after depreciation basis" effectively accelerates the depreciation.

by SilasX 4y ago

josu 4y ago

> I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset Of course there are, and they should actually be using them. But then fundraising would be harder. They are cheating on accounting, in order to raise equity capital, and hoping that the price of bitcoin will go up in the future and cover the losses.

FabHK 4y ago

> if there are any other (standard) methods of depreciation accounting IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes. There is thus an incentive for firms to tweak depreciation and pull it forward, to either concentrate it in relatively more profitable years, or generally push tax payment further back into the future. To counteract that, tax authorities often specify an upper limit on how much you may depreciate every year. These limits often distinguish by type of asset, and allow for faster depreciation for shorter-lived assets, but I could imagine that the tax code makes no provision for ultra-short-lived crypto mining equipment.

t_mann 4y ago
Great point. Most profitable companies try to minimize their taxable profits, and the same rules that are in place to counteract that can have the effect of overstating the profitability of other firms.
SilasX 4y ago
> IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes I think that’s overstating it. You’re always going to depreciate to 100% eventually[1], so faster depreciation just means you realize a loss (and reduce the tax bill) sooner rather than later. [1] or sell for actual value, in which case you adjust the books to the actual loss of value which may before or less than the depreciation formula estimated.
- SilasX 4y ago
  Follow-up: Keep in mind, the depreciation schedules can also understate how fast the good loses value. See also my lay explanation of why depreciation in tax law exists [1] and why it eventually gets resolved on sale or disposal[2]. [1] https://news.ycombinator.com/item?id=15061439 https://news.ycombinator.com/item?id=15061439 [2] https://news.ycombinator.com/item?id=26674984 https://news.ycombinator.com/item?id=26674984
- FabHK 4y ago
  You're right: with all of that, you're just shifting things around in time, and it resolves when you sell the asset or toss it. This can still have real effects in times of high interest rates, or due to the fact that a loss might give you less of a tax credit, depending on jurisdiction, than a profit generates in tax obligations. Not sure how relevant it is to the issue described in the article: depreciations that are too small, thus front loading profits - but it might be that the tax code prohibits larger depreciations.
  - SilasX 4y ago
    Aren't you allowed to keep separate books for "what we think our book value should effectively be regarded as" vs "what we're required by tax law to say it is"?

anamax 4y ago

Depreciation is only relevant if you keep the asset. If a crypto-miner becomes unprofitable to run, selling it for less than the "after depreciation basis" effectively accelerates the depreciation.