I’m a CPA who works on one of the first ICO’s, working on a variety of hedge funds investing directly in crypto, and worked on the tax returns for a crypto mining operation earlier this year.
I thought it might be interesting for some folks to understand the tax ramifications of running a mining operation out of an LLC, Corporation or any other entity. Believe it or not the IRS does have some guidance in a tax notice that was issued in 2014. The notice runs through the tax treatment of mining operations. It basically says that when you earn crypto through mining it is treated as ordinary income to you equal to the FMV (fair market value) at the time the crypto is earned. You can use exchanges the crypto is traded on to figure out the FMV. Once you recognize income on the mined crypto, that amount becomes your tax basis moving forward for when you decide to sell the crypto at a future date. When you sell the crypto at a future date, depending on length that you held the crypto, it will be treated as short term or long term capital gain assuming you are an investor and not a trader. There are specific rules for traders I won’t go into in this article. There are also specific rules for when you exchange property or services for crypto (I.e. selling graphics cards for crypto). I will also go into that in a later post. Please always seek advice of your own CPA. This post is not meant to provide advice but to only act as a talking point and something to think about.
If there are other tax topics you would like me to discuss please message me!