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This doesn't make sense. Your tax on creating the coin is only your marginal tax rate. Even if you had a 37% tax rate that means the other 63% was being eaten

This doesn't make sense. Your tax on creating the coin is only your marginal tax rate. Even if you had a 37% tax rate that means the other 63% was being eaten by electricity?

ar-nelson 4y ago
Yes, I was making a very small marginal profit after electricity. And the tax rate was around 30% once you combine federal and Massachusetts taxes, I don't remember exactly what it was. And anything I cashed out was double-taxed: first the payout from NiceHash, then the conversion from BTC (what they pay out in) to USD.
- teraflop 4y ago
  > And anything I cashed out was double-taxed That's not how US taxes work. You're not "double-taxed" because when you sell your coins, you only pay tax on the capital gains i.e. the difference from the original value, which you were already taxed on. (Assuming you correctly and accurately report the sale, that is.) In other words, each dollar you receive is taxed as income or as capital gains, but not both. Also, I'm not sure what you mean by triggering taxes "on every single payout". This is no different from a job that's taxed "on every single paycheck" -- all you have to actually report is the total at the end of the year.
  - ar-nelson 4y ago
    That's what I thought too. It didn't make sense at the time, and still doesn't, but the TaxBit forms showed a tax on both the payouts and the BTC->USD transaction. There was probably something I could have done to remove one of them, but I don't know enough about capital gains taxes to figure it out, and paying a professional would have cost as much as the tax I was trying to avoid.
    - mminer237 4y ago
      You would get taxed twice, but it wouldn't stack. If you earned $15 of Bitcoin, you'd get $15 added onto your tax bill at payout. Then if Bitcoin jumped to $20 and you sold it a couple months later, you'd have the $5 difference of short-term capital gains taxes added on then.
    - bombcar 4y ago
      You often have to correctly document each step (and I don't know if the law is "smart" enough yet to allow you to deduct the electricity charge unless you set the whole thing up as a 'company') and allow it to know the "cost basis" for each step.
    - yebyen 4y ago
      When you count your income from mining, you need to create an equal cost basis at that time. The value of the coins when you received them is your cost basis. If you didn't do that, you paid way too much in taxes. (If you hold them for longer than a year before you sell them, you can be paying long-term capital gains which is cheaper than short-term. Unless you're in losses in which case it doesn't matter.)
    - dboreham 4y ago
      Just to clarify: there's no such thing as "US crypto taxes". There are taxes, levied on things like income and capital gains. Crypto transactions can constitute taxable events same as trading any other kind of asset can. In this case it sounds like this TaxBit software is buggy / not full featured and shouldn't be relied upon. Same applies in some cases to TurboTax also, but you'd think it would be possible to handle such a simple scenario correctly.
- vel0city 4y ago
  IANAL but to my understanding its kind of a stretch to call it double-taxed. Note: the below is assuming you're doing this mining activity as a private person and not setting it up as a separate legal entity like an LLC or something. Simplifying, lets say 1BTC==$1USD at time of NiceHash payout, and you received 10 bitcoin. You'd then pay something like your regular income tax rate, lets say 30% on that. So the tax on mining income was $3. You'd still potentially have 10BTC, assuming you paid the tax with other dollars on hand instead of instantly selling. Then crypto goes up from 1BTC==$1 to 1BTC==$1.50. Your crypto is now worth 10 * 1.5 = $15USD. When you go to sell, you don't pay tax on the full $15 you just pay the tax on the gains, $5. So you'd pay the capital gains tax, probably 15% to you, on that $5 so $0.75USD. You don't pay the capital gains tax rate on the entire value of your crypto, only the gain in value. So from a USD perspective you didn't get double taxed. You had an income of $10, then you had an "income" of $5 when you realized the gains. That's two different taxable events, not a single one. If you exchanged the BTC to USD immediately at the distribution, you wouldn't of had a capital gains tax as you wouldn't have theoretically experienced any gains/losses on that distribution. IANAL, this is not tax advice, I am entirely a lay person. If I'm wrong please correct me.
  - bombcar 4y ago
    What happens is tax software, unless specifically told (and some will ask) will assign a cost-basis of $0 to something it doesn't know about, which makes the whole $15 appear as a capital gain.
    - yebyen 4y ago
      This exactly. Unless you're using a suite that's specifically built for crypto traders, there's no way the software can know that income on day X (which you pay income tax on) is from the same bucket that an asset as was sold later on day Y. You have to tell the software about your cost basis, which is only a problem if you're mining. It's smart enough to figure out buying and selling on the same platform, but it is not smart enough to figure out that some income was related to later sales and track your cost basis unless you make those connections yourself.
- medvezhenok 4y ago
  If you listed it as a side business you should also be able to deduct the electricity expense (and the cost of the GPU, depreciated over some expected lifetime) as a business expense against the revenue you made from mining. You pay income tax on the crypto when you mine it at the market value at the time of mining - then your cost basis becomes the price that you paid (for future gain + loss computations). The reporting requirement is quite annoying, so for a single card/rig it's probably not worth it - but should still make money. There shouldn't ever be a case where you have to pay more in tax than you made mining (with one exception: you keep your mining income in crypto and the crypto tanks).
- hattmall 4y ago
  Taxes can't make you lose money. You're taxes are a percent of the profit. That's how it works. You can't be forced into unprofitability because of taxes, but your profits will decrease by whatever percentage of profit your tax rate is.
  - blobbers 4y ago
    They don’t factor in the electricity you pay for to get the coin. So when you get your tax bill for $20 of btc, and you paid $15 in electricity to get it, you still owe federal and state taxes on the $20, not the $5. If you set it up as a business you might be able to write off electricity. See: https://www.bitcointaxsolutions.com/blog/can-i-deduct-mining-costs/#:~:text=How%20To%20Deduct%20Bitcoin%20Mining,mining%20expenses%20are%20tax%20deductible https://www.bitcointaxsolutions.com/blog/can-i-deduct-mining....
fallingknife 4y ago
But that's insane. That's.a 37% tax on revenue, not income. Nothing else is taxed like that.

This doesn't make sense. Your tax on creating the coin is only your marginal tax rate. Even if you had a 37% tax rate that means the other 63% was being eaten by electricity?

ar-nelson 4y ago

Yes, I was making a very small marginal profit after electricity. And the tax rate was around 30% once you combine federal and Massachusetts taxes, I don't remember exactly what it was. And anything I cashed out was double-taxed: first the payout from NiceHash, then the conversion from BTC (what they pay out in) to USD.

teraflop 4y ago
> And anything I cashed out was double-taxed That's not how US taxes work. You're not "double-taxed" because when you sell your coins, you only pay tax on the capital gains i.e. the difference from the original value, which you were already taxed on. (Assuming you correctly and accurately report the sale, that is.) In other words, each dollar you receive is taxed as income or as capital gains, but not both. Also, I'm not sure what you mean by triggering taxes "on every single payout". This is no different from a job that's taxed "on every single paycheck" -- all you have to actually report is the total at the end of the year.
- ar-nelson 4y ago
  That's what I thought too. It didn't make sense at the time, and still doesn't, but the TaxBit forms showed a tax on both the payouts and the BTC->USD transaction. There was probably something I could have done to remove one of them, but I don't know enough about capital gains taxes to figure it out, and paying a professional would have cost as much as the tax I was trying to avoid.
  - mminer237 4y ago
    You would get taxed twice, but it wouldn't stack. If you earned $15 of Bitcoin, you'd get $15 added onto your tax bill at payout. Then if Bitcoin jumped to $20 and you sold it a couple months later, you'd have the $5 difference of short-term capital gains taxes added on then.
  - bombcar 4y ago
    You often have to correctly document each step (and I don't know if the law is "smart" enough yet to allow you to deduct the electricity charge unless you set the whole thing up as a 'company') and allow it to know the "cost basis" for each step.
  - yebyen 4y ago
    When you count your income from mining, you need to create an equal cost basis at that time. The value of the coins when you received them is your cost basis. If you didn't do that, you paid way too much in taxes. (If you hold them for longer than a year before you sell them, you can be paying long-term capital gains which is cheaper than short-term. Unless you're in losses in which case it doesn't matter.)
  - dboreham 4y ago
    Just to clarify: there's no such thing as "US crypto taxes". There are taxes, levied on things like income and capital gains. Crypto transactions can constitute taxable events same as trading any other kind of asset can. In this case it sounds like this TaxBit software is buggy / not full featured and shouldn't be relied upon. Same applies in some cases to TurboTax also, but you'd think it would be possible to handle such a simple scenario correctly.
vel0city 4y ago
IANAL but to my understanding its kind of a stretch to call it double-taxed. Note: the below is assuming you're doing this mining activity as a private person and not setting it up as a separate legal entity like an LLC or something. Simplifying, lets say 1BTC==$1USD at time of NiceHash payout, and you received 10 bitcoin. You'd then pay something like your regular income tax rate, lets say 30% on that. So the tax on mining income was $3. You'd still potentially have 10BTC, assuming you paid the tax with other dollars on hand instead of instantly selling. Then crypto goes up from 1BTC==$1 to 1BTC==$1.50. Your crypto is now worth 10 * 1.5 = $15USD. When you go to sell, you don't pay tax on the full $15 you just pay the tax on the gains, $5. So you'd pay the capital gains tax, probably 15% to you, on that $5 so $0.75USD. You don't pay the capital gains tax rate on the entire value of your crypto, only the gain in value. So from a USD perspective you didn't get double taxed. You had an income of $10, then you had an "income" of $5 when you realized the gains. That's two different taxable events, not a single one. If you exchanged the BTC to USD immediately at the distribution, you wouldn't of had a capital gains tax as you wouldn't have theoretically experienced any gains/losses on that distribution. IANAL, this is not tax advice, I am entirely a lay person. If I'm wrong please correct me.
- bombcar 4y ago
  What happens is tax software, unless specifically told (and some will ask) will assign a cost-basis of $0 to something it doesn't know about, which makes the whole $15 appear as a capital gain.
  - yebyen 4y ago
    This exactly. Unless you're using a suite that's specifically built for crypto traders, there's no way the software can know that income on day X (which you pay income tax on) is from the same bucket that an asset as was sold later on day Y. You have to tell the software about your cost basis, which is only a problem if you're mining. It's smart enough to figure out buying and selling on the same platform, but it is not smart enough to figure out that some income was related to later sales and track your cost basis unless you make those connections yourself.
medvezhenok 4y ago
If you listed it as a side business you should also be able to deduct the electricity expense (and the cost of the GPU, depreciated over some expected lifetime) as a business expense against the revenue you made from mining. You pay income tax on the crypto when you mine it at the market value at the time of mining - then your cost basis becomes the price that you paid (for future gain + loss computations). The reporting requirement is quite annoying, so for a single card/rig it's probably not worth it - but should still make money. There shouldn't ever be a case where you have to pay more in tax than you made mining (with one exception: you keep your mining income in crypto and the crypto tanks).
hattmall 4y ago
Taxes can't make you lose money. You're taxes are a percent of the profit. That's how it works. You can't be forced into unprofitability because of taxes, but your profits will decrease by whatever percentage of profit your tax rate is.
- blobbers 4y ago
  They don’t factor in the electricity you pay for to get the coin. So when you get your tax bill for $20 of btc, and you paid $15 in electricity to get it, you still owe federal and state taxes on the $20, not the $5. If you set it up as a business you might be able to write off electricity. See: https://www.bitcointaxsolutions.com/blog/can-i-deduct-mining-costs/#:~:text=How%20To%20Deduct%20Bitcoin%20Mining,mining%20expenses%20are%20tax%20deductible https://www.bitcointaxsolutions.com/blog/can-i-deduct-mining....

fallingknife 4y ago

But that's insane. That's.a 37% tax on revenue, not income. Nothing else is taxed like that.