> “The danger is the creation of an electronic black market, similar to the cash economy,” Joshua Blank, a tax law professor at New York University, said in a December interview. “That’s what the IRS wants to avoid.”
I think demanding over 40% tax on a trivially worldwide transferable, hard to track, easy to secretly manufacture commodity is exactly the best way to create black market.
Those of us selling software have not frequently complained that we should get preferential tax treatment because our basis is zero and tax fraud would be almost too easy.
Tax fraud only became easy with the possibility of anonymous acceptance of payments. Now with Bitcoin you and everyone who produces intangible goods can officially complain about not getting preferential tax treatment.
Tax fraud has always been easy, why do you think restaurants/barbers/plumbers/etc. prefer cash so strongly?
The official line is that credit and debit cards have high transaction fees, and that's true (especially for very low and very high prices), but cash isn't free to accept (security, counting, counterfeit risk, etc.), and yet service industries universally prefer cash over any other payment method. Why? Tax fraud.
The IRS literally said exactly that, assuming you run your business like a business. This would require, among other things, adequate record keeping to substantiate what portion of your electrical costs were necessary and customary in your business, since you can't deduct the personal use portion of the bill.
You'd probably have to depreciate equipment rather than deducting it, unless it has an expected useful life under a year or hits some de minimis threshold. (The IRS rule on this one is really wonky. Suffice it to say that most Bitcoin miners have to depreciate not deduct.)
I think that given the speed at which bitcoin mining hardware is obsoleted, it is perfectly reasonable that most ASICs would have an expected useful life of under a year.
The relevant test is "economic useful life", which the IRS helpfully defines:
(b) Useful life. For the purpose of section 167 the estimated useful life of an asset is not necessarily the useful life inherent in the asset but is the period over which the asset may reasonably be expected to be useful to the taxpayer in his trade or business or in the production of his income. This period shall be determined by reference to his experience with similar property taking into account present conditions and probable future developments. Some of the factors to be considered in determining this period are (1) wear and tear and decay or decline from natural causes, (2) the normal progress of the art, economic changes, inventions, and current developments within the industry and the taxpayer's trade or business, (3) the climatic and other local conditions peculiar to the taxpayer's trade or business, and (4) the taxpayer's policy as to repairs, renewals, and replacements. Salvage value is not a factor for the purpose of determining useful life. If the taxpayer's experience is inadequate, the general experience in the industry may be used until such time as the taxpayer's own experience forms an adequate basis for making the determination. The estimated remaining useful life may be subject to modification by reason of conditions known to exist at the end of the taxable year and shall be redetermined when necessary regardless of the method of computing depreciation. However, estimated remaining useful life shall be redetermined only when the change in the useful life is significant and there is a clear and convincing basis for the redetermination.
The lower 20% (Didn't it recently go up to 29%?) rate is only applicable if you have held the asset for 2 years. If you buy and sell short term, as I have, then short-term capital gains applies.
Did they also extend the time? It used to be 1 year and 1 day to qualify for long term capital gains treatment. Or 2 years from the date of the grant of incentive stock options.
Capital gains varies a little depending on the asset (currencies, precious metals, real estate, etc have special rules), but generally it's 15% for long-term capital gains (1 year, not 2 years) and your regular income tax rate for short term capital gains.
It was recently raised to 20% for people in the highest income tax bracket. AMT of 28% may be used instead in certain circumstances.
I think demanding over 40% tax on a trivially worldwide transferable, hard to track, easy to secretly manufacture commodity is exactly the best way to create black market.