BitCoin Mining, Other Virtual Activity Taxable Under US Law 239
chicksdaddy writes "Beware you barons of BitCoin – you World of Warcraft one-percenters: the long arm of the Internal Revenue Service may soon be reaching into your treasure hoard to extract Uncle Sam's fair share of your virtual wealth. A new Government Accountability Office (GAO) report on virtual economies finds that many types of transactions in virtual economies – including Bitcoin mining and virtual transactions that result in real-world profit – are likely taxable under current U.S. law, but that the IRS does a poor job of tracking such business activity and informing buyers and sellers of their duty to pay taxes on virtual earnings. The report, 'Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks' found that the growing use of virtual currencies like BitCoin and virtual game currencies warrants the U.S.'s tax collection agency to mitigate the risks. Those include efforts to educate taxpayers and the publication of basic tax reporting requirements for transactions using virtual currencies, The Security Ledger reports."
Re:Bitcoin mining is not capital gains (Score:4, Interesting)
IANAA, but that's not how depreciation works. You spend a lot of capital on X to operate your business - it's a cash cost this year, and you want to deduct it from your taxes this year, but the IRS says "no, even though you spent all that money this year, you must spread out the cost of X over N years for tax purposes, so pay us a lot more this year". Depreciation is rarely a good thing, and it doesn't form a basis for capital gains.
I don't think gold miners selling the gold they mine treat that as a capital gain in the first place, AFAIK it's treated like any other manufactured product. The depreciation of the mining equipment is an overhead expense that reduces reported profit appropriately. (The cost of energy is often the primary expense in gold mining.)
Bitcoin "mining" would seem similar, but it's a mistake to assume tax law follows any sort of logic or reason.