Posted on: 28. March 2018

Cloud Mining Taxes

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Cloud Mining Taxes

Why even talk about Cloud Mining Taxes? Belaus Cloud mining is not a tax-free enterprise. Knowing how taxes play a role in your bottom line profit is a key factor in realizing the capital available to you. It’s also pivotal in realizing all the benefits of dedicating your money to a decentralized currency network.

The regulatory authorities define those who mine virtual currencies and the income generated from these activities, which is subject to tax.


Definition of cloud mining taxes

As long as the taxpayer does not act as an employee, a cryptocurrency profit obtained from mining for trade is often an independent source of income. The net income of self-employment corresponds to the gross income from commerce or trade, minus the allowable deductions.

Individuals usually work as employees or self-employed entrepreneurs. Employers record and collect taxes on behalf of their employees. Individuals who work as independent entrepreneurs declare their own taxes.

If you have mined Bitcoins or other currencies, you must declare the income for such activities in the fiscal year. The amount of income determines the income rate in the future and is used to calculate your future profit/loss margins. Below is an example from a regulatory authority:


Cloud mining taxes – an example

A total of one Bitcoin was mined in 2013. On the day it was mined, the market price of the Bitcoin was 1,000 US dollars. This means that there is a taxable income of 1,000 US dollars for 2013. If the Bitcoin is sold for 1,200 US dollars, there is a taxable profit of 1,200 US dollars minus 1,000 US dollars, totaling 200 US dollars.

The tax office adds that any mining costs should not be included in your base calculation. Instead, they would be seen as deductible as expenses in that tax year. Cloud miners need to determine whether their mining activity is increasing to the level of a business or trade, which is a highly important determination. The authority also determines which expenses a miner can deduct.

If a cloud mining operation is significant enough, it’s possible to deduct all the normal and necessary expenses. These include, among other things, the costs of electricity and depreciation on mining equipment costs. If your mining operation is not substantial or continuous, you can deduct the expenses like a normal investor.

The tax treatment of cloud mining is seen as uncertain by tax authorities. It is therefore important that individuals seek the advice of a professional tax expert as to whether or not their individual mining activity rises to the level of a commercial transaction.

Cloud mining taxes – the tax burden

Miners have to pay taxes on cloud mining, whether it's a business or a hobby. The tax on self-employment must be paid in the USA, for example, if your net income in a tax year exceeds 400 US dollars.

If the tax authority decides that your Bitcoin mining activities are a business, your tax liability may be reduced by tax deductions and credits for business expenses. If the IRS regards your mining as a hobby, these options are not available.

Cloud mining of cryptocurrencies is a process that is considered an income. This process is a taxable event and the expenses can be deducted if the tax authorities designate your cloud mining operation as a business. When miners sell their cryptocurrency, they can tax capital gains based on the amount the value of the holding has gained since the time of mining.


Capital gains tax – cloud mining taxes

If this amount is a loss, it could be declared as such for tax purposes. The tax authorities consider mined cryptocurrencies as an immediate income at the market value of the mining date. Therefore, it’s critical to know the price of the currency when it was mined.

The above information generally applies to alternative cryptographic assets and mining pools alike. Many independent contractors are subject to quarterly tax payments or penalties for failure to pay on time.

Are the Bitcoins from cloud mining taxable if I received them or earned them through a service?

Everything you get as payment for goods or services is generally taxable income, unless it is explicitly excluded. This means that if you mow your neighbor’s lawn, it doesn’t matter whether you’re paid 20 euros in cash or Bitcoins.

In many countries, you are legally obliged to declare your income. When using Bitcoins as a means of payment, it is less likely that tax authorities will know of your payments.

Are my Bitcoins taxed as income or as capital gains?

Income earned by exchanging services with another person, whether in the form of Bitcoins, dollars or euros, is included in gross income. Therefore, it is subject to income tax at the applicable rates.

These Bitcoins could also be subject to income tax. In some countries, income from the purchase and sale of cryptocurrency would also be included in gross income, but would be treated as capital gains.

Please note, the above assessment is based on the assumption that cryptocurrency is treated as a means of preserving value, such as gold and other commodities. If treated as a currency or liability instead, the full gain based on fair value could be taxed.

Consequently, if Bitcoins are treated as a currency, you will be taxed in the same way as an account in a non-working (foreign) currency.


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