Some questions are really for an accountant, but this is how I see it.

Since you are mining the crypto, you have no basis, you are mining not buying. If you do the good boy thing and report it as earnings, your earnings will be

Total mined at value when mined less all expenses you can expense against this income.

I don’t know that I agree with Ben that you don’t report income on mined crypto. Perhaps he is right but it will change everything I say if so.

Directly this would be the cost of the equipment depreciated over time. If your equipment investment is low enough you may be able to just write it off, not likely here but in some instances. Ben’s fees etc are not a deduction because you never realize the revenue. Also the equipment may meet the criteria for “accelerated depreciation” meaning you can take most of it in the first year.

Keep in mind depreciation is a two edged sword, say you depreciate 6000 dollars in gear, to 1000 dollars over 3 years (this is illustrative only I have no idea the deprecation schedule) but at this point you have expensed 5K off the equipment, reducing earnings or may be even creating a loss. Say now you sell that equipment for 3500, the results will be a “profit” on it of 2500 dollars. Price sold for less depreciation and remaining cost basis is the formula for that.

You can create other deductions but since I have not done this before I am not sure what fits and for me it will be safer to expense it to my main business.

But some ideas are any memberships, subscriptions, etc that provide education or information on crypto or any investing, etc. If you have an existing company you can then do your mining as part of what your company does, like a division, etc.

Then when you sell or spend crypto you will declare a loss or profit based on the value when mined, vs the value when sold. I hope this makes sense.

So what if Ben is right, what if you do not report the income as mined and only when sold or spent?

Okay from my knowledge of tax law, this would be like farming in a way. Say I spend 2500 dollars on trees for my farm in year one, you would think I can write that off in year one, I CAN’T, why? I have yet to realize any revenue from them. So in say year 5 I start selling apples, in that tax year I can write off the expense of the trees. This even applies to annuals, say I sow wheat for spring in fall of 17 but harvest the wheat in 18. I don’t get to write off the seed expense until I sell the crop in 18.

So if Ben is right and you mine and pay nothing, you’d not write off any expenses at all until you began selling or spending the profits. I don’t think it works this way but tax law on crypto is VERY MURKY at this point. They need to be more clear with guidance on it.

Here is what most miners do though, not saying you should. They do NOTHING! They expense nothing and pay tax on nothing. How?

Okay where is the paper trail? Unless you move it to like coinbase and sell it for cash there, how would anyone know what you did? That it was you that did it?

Again that isn’t advice, that is what is being done.

Personally I pay tax on every penny I make in any form, I am a big fucking target with what I do. On crypto I do what my accountant advises based on the situation at the time.

Ben, on what do you base not being required to pay tax until you sell or spend it? I agree in premise, because you have not realized the gain, but I am not sure the IRS sees it that way. In any event I can say absolutely that if that is the case and say in tax year 2018 you mine but do not spend or sell any, you also could not deduct any expenses, because you can only charge expenses against revenue. You can absolutely lose money, but there has to be revenue to expense against.

Man we need a CPA that knows cutting edge crypto law for the Expert Council.