WEBVTT Kind: captions Language: en did you know that some Bitcoin miners did you know that some Bitcoin miners did you know that some Bitcoin miners pay virtually zero taxes despite pay virtually zero taxes despite pay virtually zero taxes despite generating six or even seven figures in generating six or even seven figures in generating six or even seven figures in Bitcoin just like the most successful Bitcoin just like the most successful Bitcoin just like the most successful builders of wealth in the world it's not builders of wealth in the world it's not builders of wealth in the world it's not because they're breaking the law It's because they're breaking the law It's because they're breaking the law It's because they understand something that because they understand something that because they understand something that most miners don't You see Bitcoin mining most miners don't You see Bitcoin mining most miners don't You see Bitcoin mining isn't just a way to earn crypto It's one isn't just a way to earn crypto It's one isn't just a way to earn crypto It's one of the most tax advantaged businesses of the most tax advantaged businesses of the most tax advantaged businesses that you can run today I recently worked that you can run today I recently worked that you can run today I recently worked with a client named Dean who was about with a client named Dean who was about with a client named Dean who was about to pay taxes on over $400,000 of income to pay taxes on over $400,000 of income to pay taxes on over $400,000 of income which was 350,000 more than he needed to which was 350,000 more than he needed to which was 350,000 more than he needed to on his mining operation That is until we on his mining operation That is until we on his mining operation That is until we restructured his approach By the time we restructured his approach By the time we restructured his approach By the time we finished his taxable income dropped to finished his taxable income dropped to finished his taxable income dropped to under under under $50,000 completely legally And in this $50,000 completely legally And in this $50,000 completely legally And in this video I'm going to show you exactly how video I'm going to show you exactly how video I'm going to show you exactly how Bitcoin mining can be a tax gold mine Bitcoin mining can be a tax gold mine Bitcoin mining can be a tax gold mine when structured properly as a business when structured properly as a business when structured properly as a business Whether you're mining from your Whether you're mining from your Whether you're mining from your apartment with a single rig or running a apartment with a single rig or running a apartment with a single rig or running a warehouse full of AS6 these strategies warehouse full of AS6 these strategies warehouse full of AS6 these strategies could save you thousands or even could save you thousands or even could save you thousands or even hundreds of thousands of dollars Let's hundreds of thousands of dollars Let's hundreds of thousands of dollars Let's dive into the world of Bitcoin mining dive into the world of Bitcoin mining dive into the world of Bitcoin mining taxes where understanding the rules taxes where understanding the rules taxes where understanding the rules doesn't just keep you compliant it can doesn't just keep you compliant it can doesn't just keep you compliant it can dramatically boost your bottom line dramatically boost your bottom line dramatically boost your bottom line Quick but important disclaimer I am not Quick but important disclaimer I am not Quick but important disclaimer I am not a tax professional This video is for a tax professional This video is for a tax professional This video is for educational purposes only Always consult educational purposes only Always consult educational purposes only Always consult with a qualified tax adviser before with a qualified tax adviser before with a qualified tax adviser before implementing any tax strategies Your implementing any tax strategies Your implementing any tax strategies Your situation may differ Now let's dive into situation may differ Now let's dive into situation may differ Now let's dive into how mining taxes actually work Let's how mining taxes actually work Let's how mining taxes actually work Let's start with the basics of how mining is start with the basics of how mining is start with the basics of how mining is taxed because this framework is the taxed because this framework is the taxed because this framework is the foundation for all advantages that I'll foundation for all advantages that I'll foundation for all advantages that I'll show you later When you mine Bitcoin the show you later When you mine Bitcoin the show you later When you mine Bitcoin the IRS views this activity in one of two IRS views this activity in one of two IRS views this activity in one of two ways Either as a hobby or as a business ways Either as a hobby or as a business ways Either as a hobby or as a business This distinction is absolutely crucial This distinction is absolutely crucial This distinction is absolutely crucial for your tax situation If your mining is for your tax situation If your mining is for your tax situation If your mining is classified as a hobby you'll still owe classified as a hobby you'll still owe classified as a hobby you'll still owe taxes on every coin that you mine at its taxes on every coin that you mine at its taxes on every coin that you mine at its fair market value when received But fair market value when received But fair market value when received But here's the problem Since the 2018 tax here's the problem Since the 2018 tax here's the problem Since the 2018 tax law changes hobby expenses are law changes hobby expenses are law changes hobby expenses are essentially non-deductible for most essentially non-deductible for most essentially non-deductible for most people However when your mining people However when your mining people However when your mining qualifies as a business everything qualifies as a business everything qualifies as a business everything changes You still report the fair market changes You still report the fair market changes You still report the fair market value of mined coins as income but now value of mined coins as income but now value of mined coins as income but now you can deduct all of your legitimate you can deduct all of your legitimate you can deduct all of your legitimate business expenses electricity equipment business expenses electricity equipment business expenses electricity equipment repairs space rental internet cooling repairs space rental internet cooling repairs space rental internet cooling costs and more The IRS looks at several costs and more The IRS looks at several costs and more The IRS looks at several factors to determine if you're a factors to determine if you're a factors to determine if you're a business Do you maintain complete business Do you maintain complete business Do you maintain complete records are you mining with the records are you mining with the records are you mining with the intention of making a profit do you put intention of making a profit do you put intention of making a profit do you put significant time and effort into it have significant time and effort into it have significant time and effort into it have you made changes to improve you made changes to improve you made changes to improve profitability most dedicated miners profitability most dedicated miners profitability most dedicated miners easily qualify as businesses once they easily qualify as businesses once they easily qualify as businesses once they understand these requirements and that's understand these requirements and that's understand these requirements and that's when the real tax advantages begin to when the real tax advantages begin to when the real tax advantages begin to emerge Here's where mining as a business emerge Here's where mining as a business emerge Here's where mining as a business really shines Let me walk you through really shines Let me walk you through really shines Let me walk you through the key tax advantages that Bitcoin the key tax advantages that Bitcoin the key tax advantages that Bitcoin miners can leverage The first major miners can leverage The first major miners can leverage The first major advantage is business expense deductions advantage is business expense deductions advantage is business expense deductions Nearly everything that you spend on Nearly everything that you spend on Nearly everything that you spend on mining becomes deductible substantially mining becomes deductible substantially mining becomes deductible substantially reducing your taxable income Let me show reducing your taxable income Let me show reducing your taxable income Let me show you how powerful this is with a real you how powerful this is with a real you how powerful this is with a real example One of my clients mines Bitcoin example One of my clients mines Bitcoin example One of my clients mines Bitcoin as a business and generated about $1.2 as a business and generated about $1.2 as a business and generated about $1.2 million worth of Bitcoin last year million worth of Bitcoin last year million worth of Bitcoin last year without any deductions That's $1.2 without any deductions That's $1.2 without any deductions That's $1.2 million of taxable income But as a million of taxable income But as a million of taxable income But as a mining business he deducted $570,000 in mining business he deducted $570,000 in mining business he deducted $570,000 in electricity costs $350,000 in equipment electricity costs $350,000 in equipment electricity costs $350,000 in equipment depreciation $120,000 for facility depreciation $120,000 for facility depreciation $120,000 for facility rental $50,000 for networking and rental $50,000 for networking and rental $50,000 for networking and cooling systems and $60,000 for repairs cooling systems and $60,000 for repairs cooling systems and $60,000 for repairs and maintenance That's 1.15 million in and maintenance That's 1.15 million in and maintenance That's 1.15 million in legitimate deductions reducing his legitimate deductions reducing his legitimate deductions reducing his taxable mining income to just taxable mining income to just taxable mining income to just $50,000 in a business where he cleared $50,000 in a business where he cleared $50,000 in a business where he cleared $440,000 in Bitcoin The tax savings were $440,000 in Bitcoin The tax savings were $440,000 in Bitcoin The tax savings were enormous which means he gets to hold on enormous which means he gets to hold on enormous which means he gets to hold on to more coins But the advantages don't to more coins But the advantages don't to more coins But the advantages don't stop there When you later sell those stop there When you later sell those stop there When you later sell those mine coins after holding them for over a mine coins after holding them for over a mine coins after holding them for over a year you qualify for long-term capital year you qualify for long-term capital year you qualify for long-term capital gains rates These rates range from zero gains rates These rates range from zero gains rates These rates range from zero up to 20% depending on your income which up to 20% depending on your income which up to 20% depending on your income which is much lower than the ordinary income is much lower than the ordinary income is much lower than the ordinary income tax rates up to 37% This creates a tax rates up to 37% This creates a tax rates up to 37% This creates a powerful two-step tax strategy You powerful two-step tax strategy You powerful two-step tax strategy You deduct most of your expenses against deduct most of your expenses against deduct most of your expenses against ordinary income when mining and then you ordinary income when mining and then you ordinary income when mining and then you pay lower capital gains rates when pay lower capital gains rates when pay lower capital gains rates when eventually selling Or if you're like eventually selling Or if you're like eventually selling Or if you're like most hardcore Bitcoiners you can choose most hardcore Bitcoiners you can choose most hardcore Bitcoiners you can choose to never sell and thus never be taxed on to never sell and thus never be taxed on to never sell and thus never be taxed on the gain and instead borrow against your the gain and instead borrow against your the gain and instead borrow against your holdings to get cash without any tax holdings to get cash without any tax holdings to get cash without any tax penalty It's completely legal and it's penalty It's completely legal and it's penalty It's completely legal and it's one of the most efficient tax structures one of the most efficient tax structures one of the most efficient tax structures that's available to small business that's available to small business that's available to small business owners today Now let's explore some more owners today Now let's explore some more owners today Now let's explore some more advanced strategies that can take your advanced strategies that can take your advanced strategies that can take your mining tax situation to the next level mining tax situation to the next level mining tax situation to the next level Section 179 expensing is a gamecher for Section 179 expensing is a gamecher for Section 179 expensing is a gamecher for professional miners Instead of professional miners Instead of professional miners Instead of depreciating your mining equipment over depreciating your mining equipment over depreciating your mining equipment over 5 years this provision lets you deduct 5 years this provision lets you deduct 5 years this provision lets you deduct the full cost in year 1 up to 1.25 the full cost in year 1 up to 1.25 the full cost in year 1 up to 1.25 million in 2025 if mining is your million in 2025 if mining is your million in 2025 if mining is your primary business activity This means primary business activity This means primary business activity This means that you can write off those expensive that you can write off those expensive that you can write off those expensive ASIC miners immediately For example if ASIC miners immediately For example if ASIC miners immediately For example if you invest $200,000 in mining equipment you invest $200,000 in mining equipment you invest $200,000 in mining equipment you could potentially deduct the entire you could potentially deduct the entire you could potentially deduct the entire amount in the first year rather than amount in the first year rather than amount in the first year rather than spreading it out over 5 years This spreading it out over 5 years This spreading it out over 5 years This matching of expenses with income is matching of expenses with income is matching of expenses with income is especially valuable in the volatile especially valuable in the volatile especially valuable in the volatile world of cryptocurrency Even better if world of cryptocurrency Even better if world of cryptocurrency Even better if you're able to get financing on your you're able to get financing on your you're able to get financing on your equipment you may be able to offset more equipment you may be able to offset more equipment you may be able to offset more money on your tax bill than you actually money on your tax bill than you actually money on your tax bill than you actually spend out of pocket to get it This is an spend out of pocket to get it This is an spend out of pocket to get it This is an advanced strategy that high net worth advanced strategy that high net worth advanced strategy that high net worth investors use frequently but is not investors use frequently but is not investors use frequently but is not commonly understood Business structure commonly understood Business structure commonly understood Business structure also matters tremendously Many minors also matters tremendously Many minors also matters tremendously Many minors start as sole proprietors but eventually start as sole proprietors but eventually start as sole proprietors but eventually benefit from forming an S corporation benefit from forming an S corporation benefit from forming an S corporation Why with an S corp you can pay yourself Why with an S corp you can pay yourself Why with an S corp you can pay yourself a reasonable salary and take the rest as a reasonable salary and take the rest as a reasonable salary and take the rest as distributions that aren't subject to distributions that aren't subject to distributions that aren't subject to self-employment tax This can save you self-employment tax This can save you self-employment tax This can save you approximately approximately approximately 15.3% on a huge portion of your income 15.3% on a huge portion of your income 15.3% on a huge portion of your income Entity type and timing is also crucial Entity type and timing is also crucial Entity type and timing is also crucial If Bitcoin's price is down when you mine If Bitcoin's price is down when you mine If Bitcoin's price is down when you mine it but you expect it to rise an entity it but you expect it to rise an entity it but you expect it to rise an entity that allows for pass through taxation that allows for pass through taxation that allows for pass through taxation could be advantageous This lets you could be advantageous This lets you could be advantageous This lets you claim the business deductions claim the business deductions claim the business deductions immediately while potentially paying immediately while potentially paying immediately while potentially paying lower capital gains taxes later For lower capital gains taxes later For lower capital gains taxes later For miners with significant operations you miners with significant operations you miners with significant operations you should also consider exploring should also consider exploring should also consider exploring opportunity zone investments If you opportunity zone investments If you opportunity zone investments If you establish mining operations in establish mining operations in establish mining operations in designated opportunity zones you can designated opportunity zones you can designated opportunity zones you can defer and potentially reduce your defer and potentially reduce your defer and potentially reduce your capital gains taxes And I've seen miners capital gains taxes And I've seen miners capital gains taxes And I've seen miners relocate operations to these zones relocate operations to these zones relocate operations to these zones specifically for the tax benefits One specifically for the tax benefits One specifically for the tax benefits One fascinating area where Bitcoin mining fascinating area where Bitcoin mining fascinating area where Bitcoin mining stands out is at the intersection of stands out is at the intersection of stands out is at the intersection of energy use and tax incentives Contrary energy use and tax incentives Contrary energy use and tax incentives Contrary to popular belief Bitcoin mining can to popular belief Bitcoin mining can to popular belief Bitcoin mining can actually support environmental goals and actually support environmental goals and actually support environmental goals and unlock additional tax benefits in the unlock additional tax benefits in the unlock additional tax benefits in the process Miners using renewable energy process Miners using renewable energy process Miners using renewable energy sources like solar wind or hydropower sources like solar wind or hydropower sources like solar wind or hydropower may qualify for various energy tax may qualify for various energy tax may qualify for various energy tax credits The federal investment tax credits The federal investment tax credits The federal investment tax credit can offset up to 30% of the cost credit can offset up to 30% of the cost credit can offset up to 30% of the cost of installing renewable energy systems of installing renewable energy systems of installing renewable energy systems to power your mining operation There are to power your mining operation There are to power your mining operation There are miners in Texas who partnered with the miners in Texas who partnered with the miners in Texas who partnered with the wind farm to utilize excess capacity wind farm to utilize excess capacity wind farm to utilize excess capacity during off- peak hours Not only did they during off- peak hours Not only did they during off- peak hours Not only did they secure discounted electricity but they secure discounted electricity but they secure discounted electricity but they qualified for substantial energy credits qualified for substantial energy credits qualified for substantial energy credits creating another layer of tax advantages creating another layer of tax advantages creating another layer of tax advantages Natural gas flaring provides another Natural gas flaring provides another Natural gas flaring provides another opportunity In oil fields as well as opportunity In oil fields as well as opportunity In oil fields as well as landfills excess natural gas is often landfills excess natural gas is often landfills excess natural gas is often burned off or flared as waste or it's burned off or flared as waste or it's burned off or flared as waste or it's even released into the atmosphere even released into the atmosphere even released into the atmosphere completely untouched Miners who capture completely untouched Miners who capture completely untouched Miners who capture this otherwise wasted energy to power this otherwise wasted energy to power this otherwise wasted energy to power their operations can potentially qualify their operations can potentially qualify their operations can potentially qualify for carbon capture credits while for carbon capture credits while for carbon capture credits while securing extremely lowcost energy Heat securing extremely lowcost energy Heat securing extremely lowcost energy Heat recycling is emerging as another recycling is emerging as another recycling is emerging as another innovative area Miners who capture and innovative area Miners who capture and innovative area Miners who capture and repurpose the heat generated by their repurpose the heat generated by their repurpose the heat generated by their operations for example to heat buildings operations for example to heat buildings operations for example to heat buildings or for agricultural purposes like or for agricultural purposes like or for agricultural purposes like greenhouse warming may qualify for greenhouse warming may qualify for greenhouse warming may qualify for additional efficiency related tax additional efficiency related tax additional efficiency related tax incentives The key here is understanding incentives The key here is understanding incentives The key here is understanding that mining's energyintensive nature that mining's energyintensive nature that mining's energyintensive nature when it's approached thoughtfully can when it's approached thoughtfully can when it's approached thoughtfully can align with both environmental goals and align with both environmental goals and align with both environmental goals and tax incentives creating additional tax incentives creating additional tax incentives creating additional avenues for tax savings that most miners avenues for tax savings that most miners avenues for tax savings that most miners overlook While the tax advantages of overlook While the tax advantages of overlook While the tax advantages of mining are substantial there are several mining are substantial there are several mining are substantial there are several critical pitfalls that you need to avoid critical pitfalls that you need to avoid critical pitfalls that you need to avoid The biggest mistake that I see miners The biggest mistake that I see miners The biggest mistake that I see miners make is poor recordkeeping The IRS make is poor recordkeeping The IRS make is poor recordkeeping The IRS requires you to record the fair market requires you to record the fair market requires you to record the fair market value of each Bitcoin received through value of each Bitcoin received through value of each Bitcoin received through mining at the time that it was received mining at the time that it was received mining at the time that it was received Without this documentation you could Without this documentation you could Without this documentation you could face significant issues during an audit face significant issues during an audit face significant issues during an audit You can use your mining pool reports You can use your mining pool reports You can use your mining pool reports blockchain explorers and cryptocurrency blockchain explorers and cryptocurrency blockchain explorers and cryptocurrency tax software to maintain accurate tax software to maintain accurate tax software to maintain accurate records screenshot or download price records screenshot or download price records screenshot or download price data on mining days as additional backup data on mining days as additional backup data on mining days as additional backup And remember the burden of proof is on And remember the burden of proof is on And remember the burden of proof is on you as the taxpayer Another common you as the taxpayer Another common you as the taxpayer Another common mistake is comingling personal and mistake is comingling personal and mistake is comingling personal and business funds Maintain separate wallets business funds Maintain separate wallets business funds Maintain separate wallets and accounts for your mining business and accounts for your mining business and accounts for your mining business Not only does this strengthen your case Not only does this strengthen your case Not only does this strengthen your case that you're running a legitimate that you're running a legitimate that you're running a legitimate business but it also makes accounting business but it also makes accounting business but it also makes accounting dramatically easier Mclassifying mining dramatically easier Mclassifying mining dramatically easier Mclassifying mining status is another pitfall Some miners status is another pitfall Some miners status is another pitfall Some miners incorrectly treat their activities as incorrectly treat their activities as incorrectly treat their activities as investments rather than business income investments rather than business income investments rather than business income You see mining generates ordinary income You see mining generates ordinary income You see mining generates ordinary income when the coins are received Treating it when the coins are received Treating it when the coins are received Treating it otherwise can trigger IRS scrutiny otherwise can trigger IRS scrutiny otherwise can trigger IRS scrutiny Finally be wary of the hobby loss rules Finally be wary of the hobby loss rules Finally be wary of the hobby loss rules If your mining operation shows losses If your mining operation shows losses If your mining operation shows losses for several years the IRS may reclassify for several years the IRS may reclassify for several years the IRS may reclassify it as a hobby disallowing your it as a hobby disallowing your it as a hobby disallowing your deductions To prevent this document your deductions To prevent this document your deductions To prevent this document your profit motive through business plans profit motive through business plans profit motive through business plans operational improvements and eventually operational improvements and eventually operational improvements and eventually profitability Looking toward the future profitability Looking toward the future profitability Looking toward the future several trends could impact your Bitcoin several trends could impact your Bitcoin several trends could impact your Bitcoin mining tax strategy First regulatory mining tax strategy First regulatory mining tax strategy First regulatory clarity is improving The IRS is clarity is improving The IRS is clarity is improving The IRS is providing more guidance specifically providing more guidance specifically providing more guidance specifically addressing cryptocurrency activities addressing cryptocurrency activities addressing cryptocurrency activities including mining While the fundamental including mining While the fundamental including mining While the fundamental tax principles remain constant expect tax principles remain constant expect tax principles remain constant expect more detailed guidelines in the coming more detailed guidelines in the coming more detailed guidelines in the coming years Second entity structures continue years Second entity structures continue years Second entity structures continue to evolve We're seeing increasing to evolve We're seeing increasing to evolve We're seeing increasing interest in mining cooperatives and interest in mining cooperatives and interest in mining cooperatives and partnerships that allow for more partnerships that allow for more partnerships that allow for more flexible tax treatment These structures flexible tax treatment These structures flexible tax treatment These structures can distribute tax benefits more can distribute tax benefits more can distribute tax benefits more efficiently among their participants And efficiently among their participants And efficiently among their participants And third jurisdictional considerations are third jurisdictional considerations are third jurisdictional considerations are becoming more important States like becoming more important States like becoming more important States like Texas and Wyoming are creating mining Texas and Wyoming are creating mining Texas and Wyoming are creating mining friendly policies including energy friendly policies including energy friendly policies including energy incentives and favorable tax treatment incentives and favorable tax treatment incentives and favorable tax treatment Strategic relocation could become part Strategic relocation could become part Strategic relocation could become part of your long-term tax planning And as of your long-term tax planning And as of your long-term tax planning And as one client recently told me after one client recently told me after one client recently told me after implementing these strategies I knew implementing these strategies I knew implementing these strategies I knew mining would be profitable from a mining would be profitable from a mining would be profitable from a Bitcoin accumulation perspective but I Bitcoin accumulation perspective but I Bitcoin accumulation perspective but I never realized the tax benefits would never realized the tax benefits would never realized the tax benefits would actually double my effective return and actually double my effective return and actually double my effective return and operate like a turnkey business The tax operate like a turnkey business The tax operate like a turnkey business The tax advantages of Bitcoin mining as a advantages of Bitcoin mining as a advantages of Bitcoin mining as a business represent one of the most business represent one of the most business represent one of the most overlooked aspects of the cryptocurrency overlooked aspects of the cryptocurrency overlooked aspects of the cryptocurrency space broadly When structured properly space broadly When structured properly space broadly When structured properly mining offers a powerful combination of mining offers a powerful combination of mining offers a powerful combination of business deductions favorable capital business deductions favorable capital business deductions favorable capital gains treatment and specialized tax gains treatment and specialized tax gains treatment and specialized tax incentives that few other business incentives that few other business incentives that few other business models can match The key is approaching models can match The key is approaching models can match The key is approaching mining deliberately with proper mining deliberately with proper mining deliberately with proper documentation clear business practices documentation clear business practices documentation clear business practices and strategic planning The difference and strategic planning The difference and strategic planning The difference between treating mining as a casual between treating mining as a casual between treating mining as a casual hobby versus a structured business can hobby versus a structured business can hobby versus a structured business can literally mean tens or even hundreds of literally mean tens or even hundreds of literally mean tens or even hundreds of thousands of dollars in tax savings And thousands of dollars in tax savings And thousands of dollars in tax savings And working with the right mining partner working with the right mining partner working with the right mining partner from the start can put these action from the start can put these action from the start can put these action items on easy street Remember Dean from items on easy street Remember Dean from items on easy street Remember Dean from the beginning of the video his the beginning of the video his the beginning of the video his $350,000 tax savings didn't happen by $350,000 tax savings didn't happen by $350,000 tax savings didn't happen by accident It came from understanding and accident It came from understanding and accident It came from understanding and applying these simple principles applying these simple principles applying these simple principles systematically If you're serious about systematically If you're serious about systematically If you're serious about mining consider consulting with a tax mining consider consulting with a tax mining consider consulting with a tax professional who understands the professional who understands the professional who understands the cryptocurrency markets The investment in cryptocurrency markets The investment in cryptocurrency markets The investment in proper tax planning almost always pays proper tax planning almost always pays proper tax planning almost always pays for itself many times over Thanks for for itself many times over Thanks for for itself many times over Thanks for watching If you found this helpful hit watching If you found this helpful hit watching If you found this helpful hit like and subscribe for more Bitcoin like and subscribe for more Bitcoin like and subscribe for more Bitcoin content and drop your questions in the content and drop your questions in the content and drop your questions in the comments below and I'll do my best to comments below and I'll do my best to comments below and I'll do my best to address them in a future