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0 pointsksherlock12y ago0 comments

"Mined bitcoins are taxed as earned income."

Depending on the specifics, that has the potential to be a massive problem. Let's say you mine $1,000,000 in bitcoins but at tax time, the BTC market crashes and they're now worth $100,000. Do your tax bill now exceed your income?

This isn't a hypothetical scenario - During the .com 1.0 boom, some people cashed in their stock options but kept the stock (to get long-term tax rates on stock that could only go up). A year later, they owed income tax (historical market price - strike price) on stock that was now worthless. (capital losses are limited to $3,000/year but carry forward).

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yetanotherphd12y ago

I don't think this is a problem, an in the scenario you described the person was taxed fairly.

All goods fluctuate in value with time. The fair value from the point of view of taxation is the value when you earned it, whether bitcoin or stock options (maybe with options it's timed at when you exercise, I'm not sure).

Imagine a person who earned $10,000 and chose to buy some stock with it, and then that stock crashed. Did that person get taxed on stock that was worthless? Of course not, they earned money (which was taxed) and chose to invest it in something risky. The person who chooses to keep their stock is no different. They could have chosen to sell, and avoid the risk.

Bitcoin is less liquid than stock, so it is harder for a bitcoin miner to avoid these risks. Nonetheless, that's not the government's fault. Paying tax is a cost of business.

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