Taxes on crypto-mining and why they could be dangerous

[itz_eric]

In today's video Linus showed us the free mining software "NiceHash", that was also the sponsor of that video.

 

With the recent attention cryptocurrencies get in the recent months many people started mining on their PC and there is nothing wrong about that.
I recently helped with the development of the mainnet for one of the top 50 cryptos (according to market capitalization) and at this time a well known German influencer made a video about that exact currency.

 

A thing that he did not mention and that Linus also did not talk about in today's video are taxes you have to pay on the capital you gain if you mine or invest in crypto.

NiceHash doesn't show any information about taxes on their site. I can't blame them for that, because crypto laws are different in every legislation, so it's easier if users know how to deal with them in their specific situation.

The problem is that nobody talks about this topic and this is a potential danger to the whole crypto market.

On some point governments and finance authorities will look at this technology and the platforms with thousands of users that accidentally committed tax fraud. This is a huge disadvantage if we want to convince them that decentralization may be the future of finance. 

To give an example:
Here in Germany you have to register a business as soon as you do something to make profit. In this case you sell your computing power to NiceHash to receive Bitcoin. In this case you are required to register a business, even if you earn less than the tax exempt amount. (You would also have to do that if you are a Twitch-Streamer as soon as you have profit intentions)

 

Because of this I would strongly recommend LTT to put a "warning" in the description of the video next to the link to protect the community from accidentally committing a crime.

[IkeaGnome]

Just now, itz_eric said:

I can't blame them for that, because crypto laws are different in every legislation, so it's easier if users know how to deal with them in their specific situation.

So he should have turned an 8 minute ad video into a 90 minute tax law video? Just like they don't say it because they don't know end users situation, he also doesn't. He's also not a tax specialist or lawyer. 

2 minutes ago, itz_eric said:

A thing that he did not mention and that Linus also did not talk about in today's video are taxes you have to pay on the capital you gain if you mine or invest in crypto.

This sounds like it's on the end user. Virtually every country has an income tax. 

[TetraSky]

Well... Yeah ? In most countries, you do pay taxes on capital gains. While bitcoin was basically designed to go "under the radar" and all, you're still committing tax fraud by not declaring your capital gain off it and if the gov ever finds out, you're FUCKED.

The way Canada sees it, it's like any other investments you make. You're not required to register as a business either.

As long as you declare your capital gain each year, you're good to go (in Canada, you pay taxes on 50% of the capital gains... So say you make $2000, you only pay taxes on $1000).

[itz_eric]

15 minutes ago, IkeaGnome said:

So he should have turned an 8 minute ad video into a 90 minute tax law video?

I don't think that he should explain taxes in general, but just say a sentence like "Please be aware that you are responsible to do the taxes on the crypto you mine"

17 minutes ago, IkeaGnome said:

This sounds like it's on the end user.

Yeah, you may have to pay a fine or go to prison.
But I'm more afraid of the effect on the whole industry if politicians see crypto just as the thing that people use to commit tax fraud.

Crypto already has a bad image among more conservative politicians because you can use it to buy illegal goods online. On top of that comes that there are many politicians that profit from the "conventional financial sphere" that see crypto as something new and dangerous because of the fact that its decentralized.

Everybody that invests in crypto should be interested in polishing the image of this new technology because without governments on our side the general adoption of cryptocurrencies will be more difficult.

[tikker]

13 minutes ago, TetraSky said:

The way Canada sees it, it's like any other investments you make. You're not required to register as a business either.

As long as you declare your capital gain each year, you're good to go

Similar here in the Netherlands. Money-wise it counts as savings, so if you own crypto you just say how much fiat equivalent you have at january 1st and that's it. Profit-wise it counts as investing, so no income taxes over any profit there. Mining or daytrading do count as income from other work if they're profitable, because you're spending extra effort.

 

Some form of warning would've been nice. Just a heads up like "check you local tax laws" for no unexpected surprises.

[IkeaGnome]

2 minutes ago, itz_eric said:

I don't think that he should explain taxes in general, but just say a sentence like "Please be aware that you are responsible to do the taxes on the crypto you mine"

Yeah, you may have to pay a fine or go to prison.
But I'm more afraid of the effect on the whole industry if politicians see crypto just as the thing that people use to commit tax fraud.

Crypto already has a bad image among more conservative politicians because you can use it to buy illegal goods online. On top of that comes that there are many politicians that profit from the "conventional financial sphere" that see crypto as something new and dangerous because of the fact that its decentralized.

Everybody that invests in crypto should be interested in polishing the image of this new technology because without governments on our side the general adoption of cryptocurrencies will be more difficult.

I mean, there's no "And get the LTT water bottle at lttstore.com make sure you check local import/duties/VAT" 

I don't see how this is different from anyone plugging a merch store. If you go through any video on YT about crypto and setting up you'll rarely see taxes mentioned. What's the difference here?

[tikker]

2 minutes ago, IkeaGnome said:

I mean, there's no "And get the LTT water bottle at lttstore.com make sure you check local import/duties/VAT" 

I don't see how this is different from anyone plugging a merch store. If you go through any video on YT about crypto and setting up you'll rarely see taxes mentioned. What's the difference here?

I think it's valid to say a notification would be in place. From hearsay the US taxes every trade on an exchange, for example. Perhaps you can get around that if the net gain is 0 (e.g. converting coins), but it's very new and many laws are still vague around it. Buying a product overseas most of the population I would guess is aware there can be some form of import tax.

 

The mining part I mentioned here in NL, for example, says if your gaining more from mining then it's costing you, it's income, but nowhere is it defined how the "cost" should be calculated. Power usage? purchase price of the GPU? Furthermore if you only make "small profits" (again undefined) you're not considered a business and hence no income tax, but other sources say the crypto you earn goes to savings and the fiat your earnings equate to go to income tax. Even the law doesn't really seem to know what to do with it yet.

[itz_eric]

1 minute ago, IkeaGnome said:

I mean, there's no "And get the LTT water bottle at lttstore.com make sure you check local import/duties/VAT" 

I don't see how this is different from anyone plugging a merch store. If you go through any video on YT about crypto and setting up you'll rarely see taxes mentioned. What's the difference here?

Yeah, that's the problem. Nobody talks about it and many people just get into crypto without knowing anything about taxes because they just think that they don't have to pay them.

As I already said: It's your problem if you commit tax fraud, but this could have an effect on the whole crypto industry.

 

I think that it would help if they just mention it in a short sentence to let people know that they may have to pay taxes. Of course there would be some people that wouldn't mine in that case because they are under 18 or don't want to deal with the paperwork, but I think that LMG as a company with a certain sense of moral is interested that their viewers stay on the right side of the law.

[IkeaGnome]

3 minutes ago, itz_eric said:

Yeah, that's the problem. Nobody talks about it and many people just get into crypto without knowing anything about taxes because they just think that they don't have to pay them.

As I already said: It's your problem if you commit tax fraud, but this could have an effect on the whole crypto industry.

 

I think that it would help if they just mention it in a short sentence to let people know that they may have to pay taxes. Of course there would be some people that wouldn't mine in that case because they are under 18 or don't want to deal with the paperwork, but I think that LMG as a company with a certain sense of moral is interested that their viewers stay on the right side of the law.

 

4 minutes ago, tikker said:

I think it's valid to say a notification would be in place. From hearsay the US taxes every trade on an exchange, for example. Perhaps you can get around that if the net gain is 0 (e.g. converting coins), but it's very new and many laws are still vague around it. Buying a product overseas most of the population I would guess is aware there can be some form of import tax.

 

The mining part I mentioned here in NL, for example, says if your gaining more from mining then it's costing you, it's income, but nowhere is it defined how the "cost" should be calculated. Power usage? purchase price of the GPU? Furthermore if you only make "small profits" (again undefined) you're not considered a business and hence no income tax, but other sources say the crypto you earn goes to savings and the fiat your earnings equate to go to income tax. Even the law doesn't really seem to know what to do with it yet.

I think we're awfully close to getting into the "Caution - Contents hot" debate. Anytime you're making any money you should always check to see if it's tax exempt or not. Common sense says "You make money, you pay taxes on that money". LTT(or in the case of the hot contents thing McDonalds) shouldn't be punished because a person didn't do the research into local laws. 

When you take a plane to a new country. Does the airline tell you all the laws and customs of the area, or is the end user expected to do that research on their own?

[tikker]

19 minutes ago, IkeaGnome said:

 

I think we're awfully close to getting into the "Caution - Contents hot" debate. Anytime you're making any money you should always check to see if it's tax exempt or not. Common sense says "You make money, you pay taxes on that money". LTT(or in the case of the hot contents thing McDonalds) shouldn't be punished because a person didn't do the research into local laws. 

When you take a plane to a new country. Does the airline tell you all the laws and customs of the area, or is the end user expected to do that research on their own?

Sure, I agree that hiding or not reporting money can be considered common knowledge to classify as tax fraud. The problem with crypto currently is that "common sense" doesn't really apply yet, because even the laws themselves aren't 100% sure where they fit yet, and potential details like every conversion or transaction you do being taxed.

 

I think the fairer comparison in the context of hot drinks is that until now the only thing the world has known are ice cold drinks and you have now invented tea. So, yeah a "caution - hot" may be justified for a while, especially because it's about people's money and taxes, which are confusing at best under normal circumstances.

[WkdPaul]

* thread moved to the Folding@home, Boinc, and Coin Mining section *

[airborne spoon]

you don't have any income to declare till you convert it to a fiat currency.

and then it is up to each person if they want to declare it or not. its illegal to not declare it but people still don't anyway

 

~ i am not a financial advisor or a legal expert this is just my opinion of the situation.

[itz_eric]

1 hour ago, airborne spoon said:

you don't have any income to declare till you convert it to a fiat currency.

 

Maybe that's the case in your legislation.

Here in Germany you have to register a business as soon as you start with solo- or pool mining.