Profitable bitcoin mining 2016 taxes
For anyone considering mining, either because they are interested in the concept or to make some extra income bitcoin mining profitability in is a valid concern. Bitcoin mining has grown significantly from a couple of enthusiasts and cheaper mining hardware mainly USB mining devices to specialized ASIC hardware and industrialized farming units around the world.
New blocks take on average 10 minutes to mine. Proof of Work hashing: The work which miners perform to define a new block. Hashing keeps the blockchain going and the problems miners complete using computational power are called hashes. Miners are rewarded with bitcoins for correctly hashing the current block.
The number of newly-created bitcoins, awarded to miners. When bitcoin was first starting, the number was set to 50, it was halved to 25 in late, and decreased to The next reduction is expected around mid and the halving process will continue every four years atblocks, until all 21 million bitcoins are created.
As hashrates increase one profitable bitcoin mining 2016 taxes think that blocks are found quicker. However, Bitcoin difficulty is what prevents this, by adjusting the hashrate to ensure that blocks are steadily found every 10 minutes as mentioned above. When the total hashrate increases, the difficulty of Proof of Work hashing rises. On the other hand when the rate lowers, the Proof of Work also decreases and difficulty auto-adjusts every two weeks or 2, blocks.
The current fiat price of Bitcoin; critical for calculating profitability. This represents watts per hashrate per second. Electricity is the main cost associated with Bitcoin mining. Therefore the price paid per watt will significantly influence profitability. Unless you invest heavily in hardware and therefore command a huge hashrate, the odds of solving a block by yourself i. The solution to this problem is mining as a member of a pool. Whenever a pool solves blocks, miners are awarded individually according to their contributed hashrate minus commissions and other fees.
Since the cost of electricity is a determining factor for your profitability when profitable bitcoin mining 2016 taxes, you should always be aware of the rates for your area. So, this is what it all boils down to. How much will you be left with once all your costs have been taken into account? The answer to this is that profits are profitable bitcoin mining 2016 taxes to predict currently as it depends on the ever increasing difficulty rate. However, by running the numbers through a reliable mining calculator like the many found online there is still some profit to be made.
By assuming that you are purchasing the Antminer S9, that your electricity cost is at 0. Your total returns though also depend on your exchange strategy and the value of Bitcoin when you choose to sell it and if you choose to sell it. Occasionally, bitcoin hashrates spikes as a big new mining pool comes online, for example, this happened in early The impact of new mining pools decreases profitable bitcoin mining 2016 taxes the total number of miners increases.
It is profitable bitcoin mining 2016 taxes secret that in this ecosystem the home miner will find it increasingly more difficult to turn a large profit unless access to low-cost or free electricity is an option.
Another factor to take into consideration is that Bitcoin mining hardware is also being regularly updated. What is new now may be obsolete by the end of and its efficiency significantly reduced compared to newer devices. Always take into consideration shipping, customs, or other delays that can increase the cost of your initial investment.
Bitcoin mining is still profitable but it does involve a large initial investment and certain risks that could bring about changes to your plans. Make your profitable bitcoin mining 2016 taxes by taking into account all the aforementioned factors and profitable bitcoin mining 2016 taxes doing your research on the hardware you will select. Skip to content Tokens Basic bitcoin mining terms Block: How can Bitcoin mining be profitable? Determining your profit margins So, this is what it all boils down to.
Conclusion Bitcoin mining is still profitable but it does involve a large initial investment and certain risks that could bring about changes to your plans. First Name Email address:
Tax season came and went and those involved with bitcoins in had the frustration of having to profitable bitcoin mining 2016 taxes just how they will include their bitcoin related activities on their tax returns. We at Xen Accounting have seen first hand just how frustrating this can be for taxpayers due to the almost complete lack of guidance from the Canada Revenue Agency in regards to how a lot of this bitcoin activity should be treated for tax purposes.
The last, and only, time that the CRA commented on digital currencies, such as bitcoins, happened back in November. It was only a matter of time before we would receive a bit more guidance, and that came recently in a new CRA technical interpretation regarding the tax consequences of mining bitcoins.
The concept of mining was briefly explained in my previous Techvibes article. Simply put, upon successful mining on the bitcoin network, one is rewarded with a certain amount of bitcoins. But just how these mined bitcoins should be treated for tax purposes is one of the causes for confusion at the moment as mining is a completely new concept with no tax legislation to support it.
Does it need to be included in our income? All of these questions were unanswered and open to interpretation. Recently a new technical interpretation released by the CRA attempts to respond to a similarly confused Canadian resident regarding some of the taxation implications of bitcoins, largely relating to mining.
Does the new tax interpretation help give profitable bitcoin mining 2016 taxes bit more clarity? Unfortunately, things are still wishy-washy. The tax interpretation starts off by saying that mining activities can either be be classified as a hobby or as a commercial activity. They point to case law in regards to how one could make this determination.
Generally, in commercial activities, you can deduct business expenses. This is not true with a hobby. In most instances, I would expect that if you are getting rewarded profitable bitcoin mining 2016 taxes bitcoins for mining, this would be profitable bitcoin mining 2016 taxes a business activity for the reasons explained in this Techvibes article I wrote back in December. The CRA says profitable bitcoin mining 2016 taxes if your bitcoin mining activities are considered to be a commercial activity, then you need to value your bitcoins at year-end using an accepted inventory valuation method in order to compute your income for tax purposes.
Typically, this would mean you would value your inventory at either the lower of:. This all suggests that you have the option to determine how you want to value your inventory, which are essentially your bitcoins from mined activities, even though they stop short of calling all your mined bitcoins inventory whether mined as a hobby or commercial activity.
The method you choose to value your bitcoins will have direct tax implications. In most instances, the cost method of valuing inventory is preferable for tax minimization purposes.
Whatever method you choose, you need to remain consistent. The IRS recently put out a publication which states that mined coins need to be included as income in your tax return at their fair market value at the time they are mined. Although the IRS and the CRA are two different organizations with two completely different sets of tax legislation, I would have actually expected the CRA to say something more along these lines. Instead, we get a wishy-washy response saying that mined coins need to be valued for inventory purposes at year-end.
Technical interpretations are nice to have but only if they can actually guide us. This technical interpretation does none of that profitable bitcoin mining 2016 taxes regards to bitcoin mining. Instead, it simply gives us part of the picture and leaves us to interpret an illogical explanation with many inconsistencies.
This guest article was written by Ryan Lazanis of Profitable bitcoin mining 2016 taxes Accounting. Uber has halted their autonomous driving tests after a fatal accident. The ride-hailing company said today that a woman was…. Andre Haddad is a master when it comes to connecting a person with what they need. That might involve helping….
Ryan Lazanis May 15 Matt Odynski Oct 31 Max Greenwood Mar 27 Max Greenwood Mar 19 Nav Dhunay Mar 16 Max Greenwood Dec 12