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Bitcoin money adder 2016 tax returns

Contrary to popular belief, the act of mining does qualify as self-employment income as far as the IRS is concerned. The IRS ruled in that when a taxpayer successfully mines a block of virtual currency, the fair market value , the value of the cryptocurrency received on that date, is required to be included in an individuals taxable income. If you are partaking in the act of mining as a business, accurate records and receipts need to be kept in order to ensure the correct amount of self-employment income is taxed.

The IRS states that the time and effort put into an activity must be done with the intention of making a profit in order to be considered a business. The IRS determines if an activity is carried on for profit by analyzing the profit generated by the activity.

If the activity earns a profit during at least 3 of the last 5 years, including the current year, the IRS deems the activity to be a business. If the mining operation is not run with a profit motive, the IRS considers the activity a hobby and you may only deduct losses up to the income earned.

Essentially, you cannot claim a loss on hobby activities. Often times, individuals forget or simply do not know how to calculate applicable business expenses for mining.

Listed below, is a list of common expenses that the IRS allows miners to deduct as ordinary business expenses:. This is best explained by using a hypothetical example. Let's say your home is 2, sq. The IRS allows expenses used for the upkeep of your home to be allocated as a business expense for the amount of your home that is set aside for business use. This way, the miner will receive a deduction for the cost for overhead lights and air conditioning for the room the mining unit is housed in.

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Self Employment Income and Mining Contrary to popular belief, the act of mining does qualify as self-employment income as far as the IRS is concerned. What Constitutes a Mining Business The IRS states that the time and effort put into an activity must be done with the intention of making a profit in order to be considered a business.

Common Expenses for a Mining Operation Often times, individuals forget or simply do not know how to calculate applicable business expenses for mining. Listed below, is a list of common expenses that the IRS allows miners to deduct as ordinary business expenses: The most obvious expense is electricity. Electricity should be deducted directly on a per KW basis for the mining rig at your average KW rate. All supplies such as cables, cords, cleaning supplies, etc.

All assets such as your computer, hard drive, monitor s , cooling units, etc. This is called the de minimis safe harbor election and it should be utilized fully as needed to lower taxable income. Business Use of Home. This is one of the most common expenses I see not utilized by miners.

Most miners have a room in their home that is set up specifically to mine. The variable and fixed expenses of owning a home can be allocated towards this activity. This will be discussed further in the following paragraph. Business Use of Home This is best explained by using a hypothetical example.

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