joefro wrote:My mining rig proceeds will be substantial this year if things keep up. Easily 5 figures at current crypto prices, more if it rises... so I've got a year to figure it out at least. Yes production output is variable, not only in amount of coin but also value of coin. Just about the only thing that remains constant is the cost of electricity. Typical IRS guidance on cost basis is the cost paid to acquire the asset. If you are given $100,000 for free your cost basis is zero and are taxed on the full amount. I guess in that case the cost basis is the cost of electricity... which would make for a high tax bill. Or is the cost of the mining hardware included in the cost basis for the crypto? Or the cost basis is the weighted average of the value of the coin as I acquire them... which is a PITA to determine because they are being constantly "produced" in tiny amounts, but would make for a much lower tax bill. Clear as mud.
Might be easier to run a mining operation as a business. Sole proprietor or LLC. The cost of your mining rig, the electricity it uses, and the internet connection are all business expenses. The revenue is whatever you get when you sell the coins.
The wrinkle is that, according to FinCEN guidance, if you mine coin and sell it for USD, you are a money transmitter and need a money transmitting license. If you mine coin and spend it on goods or services, you are not a money transmitter and do not need a money transmitting license. I have read some opinions that if you sell mined coin on an exchange, you are not considered a money transmitter, because the exchange is the transmitter. Clear as mud. I am sure there are better researched discussions of this in crypto communities.
Writing off portions of your home / utilities for an in-home business is a good way to invite an audit though. You also pay 15.3% self-employment tax, plus federal state and local income tax in your bracket. And have to send in quarterly estimated payments for federal state and local.