If I spend $10 buying a disposable planter and herbs, and over the course of the year, I harvest $20 FMV of herbs, I have made a profit. Profits from a hobby activity must be reported as income. Time permitting, I will ask my CPA/EA when we go over my taxes. (I'm quite certain that I spent more gardening than the value of the food I extracted, and hobby losses are not deductible, so I'm quite sure I'm clean...)
I'm not suggesting that BTC should have special rules because it's digital, but rather questioning whether mining BTC should be treated as compensation for personal labor (ordinary, active income), treated similarly to a dividend or interest payment, or treated as an outcome of a business activity (like raising beef cattle, food crops, or extracting energy from wind/solar). To my mind, the activity seems more closely aligned with the last group, and pretty far removed from compensation for personal efforts.
(None of this applies to me personally, as I've never owned a BTC, but these topics strike
It is possible for compensation to also be business activity income. Compensation, tax-wise, simply refers to getting paid to provide labor or a service. Whether that service is a business activity of the service provider is a separate question. (Labor is generally not a business activity, and generally employees are treated as providing labor to their employer).
IOW, mining is compensation, but if it is a business activity of the miner, then they can deduct their losses/expenses against their mining gains. Someone who only mines as a hobby (i.e., they don't put much effort into it or attempt to maximize profits or minimize losses) doesn't get to do that even though they are also providing a service.
I'm not suggesting that BTC should have special rules because it's digital, but rather questioning whether mining BTC should be treated as compensation for personal labor (ordinary, active income), treated similarly to a dividend or interest payment, or treated as an outcome of a business activity (like raising beef cattle, food crops, or extracting energy from wind/solar). To my mind, the activity seems more closely aligned with the last group, and pretty far removed from compensation for personal efforts.
(None of this applies to me personally, as I've never owned a BTC, but these topics strike