Howdy Everyone,
This is not financial advice. Contact your financial professional for real advice. I wanted to expand a bit on the post I made on X today. It seems like some people are misunderstanding my point so here it goes:
If you run a business as a “Sole Proprietor”, this is a business that is operated under your name. It is different from an LLC or Corporation, which is registered with a state as an independent entity and provides legal separation from the person that owns it. Many people that work for themselves are “Sole Proprietors”. Construction subcontractors are one example of a common sole proprietorship dense industry. Generally speaking, people establish an LLC or Corporation when they want to avoid personal liability for any issue that may arise with their company.
Being a sole proprietor may or may not require a business license where you operate, but that is usually a local issue. Where I live there is not a local business license required to be a sole proprietor, but your mileage may vary. Also, business licenses are a separate issue from your federal tax filing. The term “Sole Proprietor” is used to classify the type of business you run; there isn’t a mechanism or motivation for the IRS to ensure you have a local license… its not relevant.
As a sole proprietor, you can claim the cost of operating your business as an expense on your tax filing. For example, if you paint houses, you could claim the cost of fuel to drive to work, your vehicle, or other types of expenses that are directly related to the performance of the job if those expenses are not recouped in the payment by the customer.
When mining Bitcoin, electricity is the primary expense. Purchasing equipment is also an expense.
Producing Bitcoin is the source of revenue for your sole proprietorship.
As long as you acknowledge that you own “Crypto” and accurately report your earnings, you should be able to deduct the cost of producing that commodity (electrical and equipment) as a business expense. Taxpayers need to report crypto, other digital asset transactions on their tax return | Internal Revenue Service
This is different from operating an LLC in your home, and claiming a certain percentage of floor space to put your office in to calculate your expense based on your mortgage and other bills. The square footage used is not relevant, as the raw cost of doing business is the electrical commodity. I’m not saying that you cant deduct the space of your home office, but the real fruit here is the cost of electricity to run your sole proprietorship.
So to get to the crux of the matter, your power rate is not as big of a factor, because the cost of all energy used to produce the commodity of your sole proprietorship becomes a tax deduction for your business.
The production of heat is a “problem” you have to deal with, or a benefit, but there isn’t a way to really report the benefit of that so just enjoy it while it lasts. Maybe you could get creative and claim a ventilation system in your house as a way to deal with the side effects of your business but you do you. I have a $300 swamp cooler that works like a boss.
My recommendations:
- Meter all of the power used to mine your BTC and keep records with photos.
- Keep an accurate spreadsheet log or other records for power consumed along with rates.
- Keep records of your BTC deposits from your mining pool to track your cost basis.
- Ensure you report your BTC earnings to the IRS.
- Win at life.