Bitcoin Mining Tax Strategies 2025 | Year-End Tax Planning for Miners

Speaker A: I think a lot of clients, they've come to us. A new client, right, it's come to us on a call. Hey, I saw the big beautiful bill. I'm depreciating everything. I've got a net loss of like 300 grand. I'm excited to, to carry forward, not pay tax for many years. And that's where, hey, you need to make sure you're applying those appropriately because that's definitely another trigger for the irs. If they see you've got millions and millions in revenue, but you've got a loss year after year, somehow you keep operating, that's going to be something they key in on.

Speaker B: Welcome to Compass Menu Cast. I'm Nina Xiang and we are talking to Nick Ward, a CPA and co founder at the network firm. Again, because it's Q4 and you know what that means. It's never too early to start year end tax planning. So Nick, great to see you again.

Speaker A: Yeah, it's great to see you too, Nina. Thank you again for having me back.

Speaker B: So how do you like Q4 as a, uh, CPA?

Speaker A: Uh, it's good. It's, you know, we're in the actual 10:15 deadline, right. For all my late filers or extenders, they've got a couple more weeks to go ahead and file, get their prior year returns done. So we're certainly busy these next couple weeks and then, yeah, once we get past that, then Q4, it's a good time of year. Right. We can do a lot of strategy with clients planning for next year. There's still time to take advantage of some of the strategy versus if you're talking to us next February or March, you might be a little too late on some of those things. So yeah, very much enjoy the end of the year, uh, from that perspective.

Speaker B: Yeah, awesome. So, um, so before we go into, you know the, the, the best part of this podcast which is going to be strategies for year end tax planning and all the tips pro tips you can get. Uh, let's cover the ground a little bit and setting the stage a little bit on just bitcoin mining tax primer, like you know, one on one lesson on, um, bitcoin mining tax issues. Um, so maybe very, you know, briefly, uh, Nick, could you just give a little bit, um, basic ground covering for tax, uh, issues related to bitcoin mining?

Speaker A: Yeah, yeah, no problem. So, yeah, resetting the stage. You know, the IRS back in 2014 dubbed Bitcoin, uh, property. So what that means is when you are mining and you earn bitcoin, you're going to recognize revenue at the point you earn it. Um, so, you know, I'm sure most of us are using a mining pool. The mining pool will credit your account for that day. For bitcoin earned, you should track that cost basis or value, uh, at that date, um, for revenue recognition upon when you receive it there, uh, that'll be your cost base going forward. So just, you know, let's use today's example. If you lucky enough to mine one bitcoin for the day it hits your mining pool account, you've got $120,000 cost basis in it. And you'd recognize that as ordinary income revenue. Um, and then like I said, because the IRS has dubbed it property, you'll track that. And when you convert it to US Dollars or any other fiat, or you use bitcoin to maybe purchase more machines, pay a, uh, utility bill, pay your employees, you would take the value of the bitcoin at that time. So let's just say fast forward to a week and we're at $125,000 and you trend, you sell it all for US dollars, you've got a $5,000 capital gain that you'd have to recognize on your taxes.

Speaker B: Thank you. So in terms of, uh, we're going to talk about revenue recognition later, but in terms of like the moment, uh, when you recognize bitcoin, ah, Bitcoin revenue, when you mine it, uh, does it matter if uh, you take the time of um, the bitcoin hitting your wallet as a cost base, that basically the fair market value of bitcoin at that moment, or is there like um, a crew basis? You could, you could do that. Like, does this really matter for bitcoin mining purposes?

Speaker A: What I would tell clients is you, of course, if you want to be extremely precise, could look at that exact moment and take the price. I think most people in a practical sense will just take the price for that day, um, and apply it to the bitcoin earn for that day. And what I would say there too is, you know, one of the keys with the IRS or even financial reporting is being consistent. So if you're going to use the day's close price or open price, uh, just continually use that going forward so that you're not bouncing around. Because that's when the IRS could, you know, start to beat up your approach if they notice, hey, you know, on day one, you use the close price. On day two, use the open price. On day three, use the exact price at the time. So what I would say is just be Consistent. But it's certainly acceptable to say I'm just going to take the price for that day, apply it to what I earned that day, and that'll be my cost basis on that lot.

Speaker B: That's really helpful. So for 20, 25, what are some changes that miners should be, uh, keeping in mind?

Speaker A: Yeah, and you know, certainly we'll plug our last episode here. But one of the keys was the big beautiful bill, which uh, ironically didn't reference bitcoin directly, but it referenced depreciation and specifically bonus depreciation. So previously bonus depreciation is, was you know, capped at certain levels. And so that's right, the expense you take on your capitalized mining equipment and other, uh, capital assets used to power those machines. Um, so it was previously capped and phased down where you could only take so much each year. Now that's back to 100% bonus. And bonus appreciation specifically can take you into a loss position. So let's say you've got a net profit of $100,000, but you've got 300, $300,000 of new machines or depreciation left on machines. You could take all of that in the current year bringing you to a loss, uh, of say 200,000. Now you've got a tax loss that could be used for the future or at least taking down your tax owed in that current year. So I'd say that's the largest one that ah, we've been focusing on with our mining clients.

Speaker B: All right, let's go back to the um, I guess tax 101 issue. Uh, another important um, decision people have to make is to uh, decide whether they're treating mining as an individual, um, kind of hobby or as a business. So how do minors determine whether they are classified as a hobbyist, uh, sole proprietor or just running a business?

Speaker A: Yeah, it's a little nuanced with irs. Right. Because you know, I think a lot of. Sure. Your retail clients, even myself included, you know, I have one or two machines plugged in, uh, they're on and off throughout the year. So I still treat myself as a hobbyist, especially because I don't run them all year round. You know, I wait till it gets cold here in Ohio, help heat the garage, things like that. Um, but essentially what you can do is you create an llc, put your mining operations in there, um, and generally that's going to help satisfy that requirement. And so when you do that, it opens you up to allow to, you know, depreciate your equipment, um, expense other costs against the income that are related to um, the mining operations. And so I think that's kind of the key point is to take a step. If you haven't finalized, created a separate business, you haven't been tracking it, um, you know, separating your personal accounts from the mining accounts, you should take those steps because again that's all going to support your treatment of that business and you know, make um, it official in the eyes of the irs.

Speaker B: Mhm. So um, I think you just talked a little bit about the bonus depreciation, uh, section 179. We talked about those, uh, extensively, um, in the last episode. Um, is there anything else to add? Ah, you know, from a year end tax planning perspective.

Speaker A: Yeah. And you know, maybe a quick clarification point on that is there's the bonus depreciation is what I just spoke on. So that's up to 100% now. And then there also is 17 section 179 depreciation, which is a little different. And so section 179, similar to bonuses for, for new equipment that you've placed in service for that year, you can depreciate 100% of it up to a break even. So section 179 cannot take you into a loss position. So in my example of you've got $100,000 net profit and $300,000 of new machines, 179 could only take you to, you know, you only apply $100,000 to that where bonus could go over. Now why that's important is section 179 only applies to equipment, place and service that year. So for any miners you put in service for 25 you could do 179. But next year you can't do that again. You'd move to bonus. And so there is some strategy around, hey, do we, do we start with 179, get us to break even and then decide on the bonus. Um, so that's one big piece. And again I keep saying this, but I'll specify for the audience, the equipment has to be placed in service. So you need to get that equipment plugged in and hashing to actually apply bonus depreciation, uh, or 179. Um, from there then you'll want to look at, you know, ensuring you've got all your deductions in place and you're tracking those accordingly. Right. So these, these are cost to power your machines. Um, so if you're hosting, right, it would be hosting costs, of course, your utilities, the depreciation. Um, if you have specific contractor costs to maintain your equipment uh, those would also fall in that bucket. Um, and then there's certainly, you know, outside of mining, going to be other tax strategies. Right. So if we've exhausted our depreciation, we've got all our deductions in, but we're still at a significant profit and have a large tax bill, that's when you know, we'd strategize in other things like charitable deductions, um, and you know, IRA contributions. All these things that I think are deeper down the weeds but are part of the strategy. So that's why it's important. You know, a lot of people, maybe you're only closing your books a couple times a year, you're waiting to your end. It is important to try and do that analysis now to get at least up three quarters in to get a picture of what you're looking like. Because we have that time now to go ahead and you know, hey, let's get those charitable deductions put in place or like I said, the retirement contributions, things like that before the year's over.

Speaker B: Yeah, very important. Um, so I think for miners, uh, a lot of times they would be selling uh, their perhaps older generation miners off and then buy newer generations, uh, or they could be buying used miners. So that really complicates the picture. So can used miners qualify for uh, accelerated depression or expensing sales, you know, for people who are buying used miners?

Speaker A: Yeah, I think, um, for in most cases if the equipment's newer to you, the used isn't going to matter much. Right. Because when you're buying it while it's used, you're going to place a new piece, um, of equipment and service. Now what I would say is the useful life of that service likely is lower if it's an older model. So maybe a brand new machine you could argue has three year useful life, which means we can depreciate it over three years. And again when we're talking about bonus or 179, we're accelerating that to one year. But um, for a used one, you may only have a one year useful life. So then that would be a section of miners that I may set. Well, I would absolutely separate from the rest of my fleet because when I'm deciding on 179 or bonus, I'd want to accelerate the ones that have a longer life where you know, that one year new used miner, um, it'll hit its depreciation within a year anyways, so may not make sense to use our 179er bonus on that specifically yeah.

Speaker B: And how about for, like, miners, um, who are upgrading their equipment, so, um, uh, selling off the older ones and buying new ones. And, uh, suppose, uh, a good strategy is keep buying the latest generation of miners to hit the most efficient machines. Um, how does that, uh, you know, obviously you have to think about how do you depreciate that to keeping, uh, in mind there is depreciation recapture. Uh, so if you sell those miners in a year or two, you have to plan that. So how would you think about, uh, the best strategy there?

Speaker A: Yeah, no, that's a great point. So let's, you know, maybe break that down a little bit. So the depreciation recapture Nina's talking about is once you fully depreciated that asset, you know, and you could kind of think it's similar to when you're selling Bitcoin, right. Your cost basis in it now is it's zero. Right. You've depreciated it, so you've got an asset you're selling. So anything you receive for that, um, is likely going into the gain bucket. And that's where, again, that depreciation you accelerated is going to go into that equation and up the amount of the gain you're potentially receiving. Um, so that's again, when we talk about looking at the tax picture holistically, you'd want to identify that, because if you're upgrading your equipment, right, you're expending capital, but you want to know every piece to that puzzle. So you might have cash coming in from selling the old equipment, but let's net out our taxes, you know, net of the depreciation recapture on that first. So, you know, all right, this is now the number I have to spend on new equipment. Um, and then from there, again, it comes down to, for us, a lot of that planning is on where are we at in the year. Um, because if you're gonna, by the time you place your order, uh, receive your equipment, if we're into December, it may make sense to hold off and just plug that in on January 1st so we can apply taxes to next year. But it also may make sense to get it in and plugged in before year end because, hey, we've got a lot of profit here. We need to get our new equipment up and running, take advantage of that depreciation, and offset some of those taxes due.

Speaker B: So how about, uh, people who host their miners with companies like Compass Mining, um, are hosting fees. How are they treated? Um, as fully deductible or as operating expenses.

Speaker A: Yep. Yeah. So generally, hosting expenses are going to be fully deductible. Um, you know, right. You're hosting a machine, those are costs for you to run and earn that revenue so it can offset that revenue. Um, you know, when you get into. If there's distinguishments of potentially, you know, if you're. This is going to not necessarily apply to retail but your larger uh, business customers that are maybe grabbing a larger piece of the facility and maybe they're investing in development and setup of that facility to be uh, maybe it's more energy efficiency or creating you know, uh, cooling, liquid cooling centers for their miners within the host site. Um, those could be subject to capitalization. Right. Which again then they'd still be depreciable. But those are some of the distinctions to make. But generally if you're just paying a host site to host the equipment handle, you know, making sure the machines are plugged in, monitor them for you, deal uh, with any repairs, those are all going to be uh, able to be expensed and places deductions against your mining income.

Speaker B: And uh, for other costs like uh, shipping, uh, insurance, repairs, um, are those also like operating expenses?

Speaker A: Yep. Yeah. So shipping generally would be an operating expense to get your m. You know, whether you're receiving them directly or shipping to sites, um, the repairs and maintenance, again it depends on how large they are. And then I'll also call out for you know, even retailers who have their own business, uh, they've set up their own business. Right. They're mining under that business structure, not as a hobby. Um, we would have clients. You know, you set a cap X policy it's called right. Which just says hey, for our business, if we've got anything that's below $2,000, we go ahead and expense that regardless of what it is. And then everything above it would be subject to capitalization. So that's usually step one is hey, let's establish that policy. And then again each repair though, if it's above that, we would look at it and go hey, did this improve or extend the useful life of the equipment? Then maybe that would get capitalized versus just expensed outright. Um, but that's an analysis that we go through. Um, and then I think what was the third bucket was insurance. Um, generally insurance would apply as a deductible expense. It depends on how the policy works of course. But and if it's prepaid, right, all up front, then you'd only expense those portions that apply to the period. But generally, yep, that would go in the expense bucket.

Speaker B: Now another um, ah, I guess topic that's um, that's recently we covered uh, in compass mining is we recently um, energized uh a gas mining facility basically using stranded uh, gas uh, for electricity uh for that mining site. Uh, how do you treat off grid energy setup using whether either it's solar, hydro or flared gas.

Speaker A: Yeah. So there's, there's not much difference in terms of the things we've talked about. But um, I know calling back a few years ago now, the inflation Reduction act included some additional tax credits for like renewable energy, solar. Solar everything you're discussing. And so if miners are investing in on site solar batteries or grid support structures like the gas flaring, um, there's, there's significant credits up for grads, you know devil's in the details for getting, actually obtaining those. But I know um, I believe it's up to like 30% on some of those costs that can come back as credits. Um, if you're retrofitting or building your own data centers, that same credit uh, path applies. Um, and there's definitely more on that front in terms of actually building the structures that you can apply to both the real estate investment you're making and all the upgrades. Um, and then lastly you know there are still that renewable credit um, sector where right. If you've gone over where you've earned these credits, you can't necessarily deduct them yourselves. Um, there's a market for actually reselling those and of course a whole rabbit hole to go down of is that good or bad? Negative in terms of the ultimate goal of being better for the environment. But they do exist and they're part of the playbook. Um, so if you're earning those energy credits, you want to make sure you're applying, take advantage of what you can and then you're revisiting this renewable energy sector because maybe you won't be able to apply those to your own books so you could resell those, get capital in to help growing your fleet and getting more hash rate online.

Speaker B: Yeah, the world of like incentives credit and you know related deductions to those incentives uh, are just such a, such a complicated world to navigate. What's your suggestion in terms of like where to find resources or just you know, just go to a CPA like you who knows the um, in and outs and can better take full advantage of those incentives.

Speaker A: Yeah, I mean definitely start with your CPA or your trusted advisor if it's someone else and just. And I would say as soon as you know you're going to be going down that path um, because what's likely going to happen is they'll help quantify, okay, how much are we actually investing in this? What does it look like? What's the potential outcome we're going to obtain? And then, you know, we have partners, frankly, that are experts in this field that we would bring in to the fold because they're the ones who are really going to help identify, you know, we can point out the credit tax credits that are there and help make sure we're filing the right forms with your taxes. But when it gets into that secondary renewable credit market, how to track those, that's where you definitely want an expert who's focused on it because they're going to be, frankly, more efficient. Um, they're going to be able to see around the corner and help get to that final point we've been touching on here about, all right, you can apply X credits, but then you'll have, you know, Y in your bank and, you know, therefore you could have capital to go resell those on that secondary market. Should, uh, that be part of your strategy?

Speaker B: Very helpful, thank you. So now let's talk about record keeping and compliance. So we previously, you know, mentioned about revenue recognition and um, it's, it's such a huge job just to kind of like keep track of your cost basis, um, uh, and also for later capital gain, tax. Uh, so what is the best practice for record keeping? Uh, are there useful tools you recommend?

Speaker A: Yeah, I mean, the good news is the tools. There's numerous tools out there now in terms of software that, right, you can plug, right, plug your mining pool, plug your wallets right into it. It will start to grab that data automatically. You can tell it what price you want to apply. So as we talked about earlier, maybe it's the open price on Coinbase or, or Coingecko, um, or it's the close price. You can tell it what you want to apply so that it does that consistently. And it'll track those lots, right? So each day it'll flow into your system, it'll apply a fair value price. And now you've got a good record there. Um, if you don't have a software, um, then it becomes an exercise of making sure that your internal team is tracking those in the same way. And what I would say is, you know, a lot of the mining pools, they have good data. They give you that full record of, hey, here was your hash rate you sent us that day. Here's the rewards you earned, here's your withdrawals when you took it out of the pool. Account into your own wallet. Um, but what I always remind clients is make sure you're downloading those regularly because sometimes you get a year or more down the road. And that mining pool maybe only keeps six months or so. And you, you're in this situation where you're pinging their team to get that data. So just ensuring that you're capturing whatever pool you're a part of, whatever exchanges you're utilizing to maybe liquidate Bitcoin, you're keeping those monthly statements is what I would say is the cadence. You're downloading those to support your records and your um, your tax returns. Right. That ends up there. So that's a key piece. Um, there's also good news on there's multiple softwares that help monitor all your machines. So while it's not so much full tax compliance side, just keeping an eye on your operations in terms of uptime of the machines, efficiency is going to be key to ensuring, you know, you're tracking, hey, maybe we do need to replace or upgrade equipment, um, from that perspective. And then on the fixed asset side, so again when we're talking about depreciation, these fixed or capital assets, so all your mining machines, power supply, cable, these things that are cooling equipment, right, that all support and actually help your machines go plug in and hashtag, you'll need good detailed schedules of those machines. Um, what I always recommend is you've got your classes of fixed assets. So miners would be a class, but within that class, then you'd want to track it by each individual item, frankly, or at the very least, um, items batched and when they got placed in service and the type of model they are. Because like we talked about earlier, you know, that brand new model likely has a three to five year useful life. But if you do have some older models or you're buying used equipment that might have a separate useful life. So having that schedule to support the depreciation, to show your advisors, your CPAs. Here's my full picture, here's my strategy in terms of when I want to upgrade. Let's now talk about how much depreciation we're going to take and apply. Um, it'll both support compliance on the tax side of what we report. Here's the schedules to back it. But also then as we move to strategy, here's what we've got, here's the full picture so we can break it down and start to, to um, be very specific and intentional about, you know, where we're taking depreciation, when what we're reselling um, and all those good things.

Speaker B: Mhm. So those are good practices. But, um, what are some of the red flags that the IRS is looking at for, you know, crypto, bitcoin, um, audits.

Speaker A: Yeah, I mean, you know, it's, it's always hard to say where or why people are getting pooled. Um, but I do know, you know, more some things the irs, they do, they do give us some commentary on where they're looking. So I know one big area is on partnership structures. And so we've certainly had clients set up mining operations as a partnership. Right. Where you've got, uh, different classes of partners. Maybe they're individuals, maybe they're businesses that are investing and there's investors within those businesses that are the actual partners. Um, and so I know that's definitely one area. So if you've got a partnership structure, they've, they've said that's a key piece, not necessarily bitcoin related, just in general. So CPA partnerships are in that bucket, frankly. Um, but that's one they're definitely looking at where they think there's a lot of complication, thus potential for unpaid taxes to recapture on their front. Um, when it comes to bitcoin in general. Right. It's. I know they're getting, you know, if you're going to exchanges and you're liquidating a lot, you're racking up this 1099 DA or 1099 G form, so they get this gross amount. And so bitcoin miners certainly are going to have these large numbers going to the irs. It doesn't give them an insight into what's the cap gain loss like your traditional stock 1099s, um, but at least triggers them to go, okay, maybe there's something here. And then, you know, I believe their process, they'll compare that to the tax return what's reported, and then make a determination. But, um, and then on the depreciation front, again, you need to make sure you're applying it correctly. I think a lot of clients, they've come to us a new client, right. It's come to us on a call, hey, I saw the big beautiful bill. I'm depreciating everything. I've got a net loss of like 300 grand. I'm excited to carry forward, not pay tax for many years. And that's where, hey, you need to make sure you're applying those appropriately because that's definitely another trigger for the irs. If they see, you know, you've got millions and millions in revenue, but you've got a loss year after year. Somehow you keep operating, that's going to be something they key in on. But again, there is a bit of randomness to it. Um, so you never know. You just want to be prepared. Because when you do get audited, right, you'll get a statement. And I've been through with clients that says, hey, we're auditing you. Here's a giant list of stuff we want. Give it to us. And if you don't have those records, it can be really disruptive to your business operations, right? Because now you've got people on your team that need to spend. I mean, if you have no records, right, it could be weeks, two months of time that they have to take to go ahead and gather all those records, put them together, send them to the irs, then you're getting on calls to go through it. So if you do all that up front, if you get audited, you can, you know, I'm sure there's still some anxiety that comes with that letter regardless, but you at least know, all right, I've got all my records. I know they support what I filed. So here you go. Let's. Let's go through the process.

Speaker B: Oh, my goodness. That sounds like that's where you could hear a lot of the horror stories with, uh, ras, like, what was some, um, worst case you've seen?

Speaker A: So frankly, it's on the individual level. But yeah, we, we. I had a couple. One, one specifically of an individual who filed their own taxes. Actually, they weren't our client. And then they got a letter. Um, and this is a few years ago, but they got a letter. And that letter was, you know, we want all your bank statements, every wallet, all the detail, right. For the whole year of, um, I think it was 2019 or 2020. And you know, the individual had, he reported a larger gain on the taxes, but, but they asked for all that. We had to go through it. And you know, you, you have to. You could take the chance of going through it yourself, but, right. He, he wisely got tax legal counsel, got CPA counsel, and that all comes with costs. So now he's incurring costs to deal with this. You don't know the outcome. Then you get on calls and they're. They're just beating up transactions, you know, hey, what is this Send here? We saw that. Why wasn't that reported? Well, that was a wallet to wallet transfer. So non taxable. Right. But he still had to take that time, you know, I don't know. All in. It was probably eight to 12 hours of calls with the IRS, and then, you know, us in the background, probably another 8 to 12. So it's a lot, um, and it's not fun. And, yeah, you know, the good news is that didn't result in this significant tax bill because he generally reported them correctly. It was a small amendment we made and a little bit of tax owed. But, you know, it could go the other way where you've got significant amounts, you underpaid, and therefore, then you're talking about interest on that tax penalties, which, uh, you know, that's what you don't want to do, because in most cases, right, you've spent the money, you thought you paid your taxes. Now you've got to come up with funds to bill. And, you know, the IRS will work with you. They'll allow payment plans, but it still is not worth it. Anyone that's got gains, I tell them, like, let's be above board. Get those taxes paid correctly and on time. So you're not. You don't want to pay them more than you need to, frankly.

Speaker B: Well, let's hope no one who's listening to this podcast would ever, you know, have this happen to them. That really sounds, uh, horrible. So, um, all right, let's move on to, um, international housing or, like, foreign tax issues. Because for us, for example, we do have mining facilities in Canada. Um, so how should those be handled?

Speaker A: Yeah, it depends certainly on the jurisdictions you're in. Um, generally for the US you're going to still identify those, bring them into your fold. Right. And report them similar to how you report everything else. There are some foreign tax credits that can offset some of it if you're, if you've separated operations, um, that are in different jurisdictions. Um, but, you know, like, I know Canada, for example, if you're there, they're going to withhold local taxes on your hosting and mining rewards. So, again, it's kind of in this, that audit bucket of. Are you seeing the full picture with your advisor? And have you identified, hey, I have a location. Uh, again, we'll stick with Canada. I have a location in Canada. I've, of course, reported that revenue on my US Tax return. But, you know, I would then ask, well, did you withhold the local taxes there? Right. And the answer is no. We've got to catch that up. And so, again, each jurisdiction is different. Not, not every foreign jurisdiction may require withholdings. Um, but if they do, you certainly want to make sure you've got those. Um, trying to think of other things. You know, there's Other import taxes, uh, VAT taxes that could come up. Duties, import duties, right. On rigs, even if you're, if you're shipping from there or if you're shipping to there. So those are certainly issues you want to be aware of. And then there's also double taxation that could pop up, you know, if you've set up a foreign subsidiary. Um, but again, it's a subsidiary of a U.S. entity, you could face that local tax there and then again tax in the US So that's where if you're going to go down that path, sit with your advisor. Right? Let's say, hey, we've identified what we think is a cost effective location, um, internationally, we've, we've laid all that out. But maybe that tax piece, the local taxes there, the U.S. um, the U.S. requirements for things earned there aren't part of that budget. You should definitely get those on the sheet so you can make a very informed decision.

Speaker B: Awesome. Thank you. So thank you for laying out all those very, um, insightful, uh, tax issue, uh, advice. But now is the most important question for today. What are your best strategy for your ant planning for 2025?

Speaker A: Yeah, I mean, you know, again, it's a little redundant, but it's, hey, make sure if you haven't closed your books, right, Maybe, you know, I know a lot of businesses, there's 100 different things you need to do. Uh, and sometimes the accounting is a secondary thought where you've got, you know, you've got a cash Runway you're monitoring, you know what that is. Or maybe you generally know that you're in a net income or break even net loss position. But it's high level, right? You haven't really pulled in all your expenses, you haven't taken the time to really close the books to date. Um, take the time to do that and to the best you can. If it's up to June, fine. That's better than nothing. You know, again, I'd argue trying to get to September 30th at least 3/4 of solid data is gonna really allow you to make the best decision. But that's step one. So again, get all your records together, get as best a full picture as you can, and then sit down with your advisors to look at. All right, what is our position at currently? Um, you can do a quick projection right on where we think the Q4 would go based on those numbers and then we can start to break down each bucket of. All right, let's start with depreciation. Have we taken advantage of everything we can there, um, have we taken other deductions like I mentioned earlier, the charitable, the retirement, have we done that? Um, then you get into things, you know, if you've got a bitcoin treasury that you've been accumulating, um, maybe there's some loss harvesting we could do there. Right. So those are. The strategy really starts with, hey, get the best picture of your books closed and then get time with your cpa, your advisors to start to break that down and strategize what we can do to minimize our taxable income.

Speaker B: So let's focus on tax loss harvesting then. What are some, um, good tips you can give?

Speaker A: Yeah, so again, you know, bitcoin digital assets in general, don't. The rules. Um, there's a rule called the wash sale rule. Right. So with stocks, equity, what that means is if I sell an equity at a loss today, I can take that capital loss against any capital gains for the tax year. But the wash sale rule prevents me from rebuying that stock within, I think it's 30 days. Um, otherwise if I, you know, if I sell it today and I buy it in 10 days, then I can't take that deduction and. Right. It makes sense because it's preventing you from saying, I'm going to. I'm selling an asset that I don't really want to sell because it's at a loss currently. So I can offset some capital gains, but then I buy it right back. Um, because the IRS is dubbed bitcoin and crypto property, the wash sale rules don't apply to property. So to date, you still can take advantage of that. Meaning you could liquidate bitcoin at a loss, buy it back and still essentially have the bitcoin on your books, but take advantage of a loss for the year. You know, it's something. I've been surprised. Yeah. That they haven't addressed it. I think some, uh, politicians have raised it as an issue. Um, you know, generally think it's fair that you would raise it. Um, because again, it doesn't apply to other liquid assets generally. But to date, the rule's still out there. So you can take advantage of that. And that is, you know, and then even for other assets you have that maybe wash sale rules do apply to, you still want to go through that exercise because again, if you've got capital gains on bitcoin, which again, we've, we've had another good year price wise. So likely most people are in that position of anything they've sold, sold or they've used Bitcoin to purchase assets, they probably have gains. Um, maybe you have other capital assets that are at a loss that you don't necessarily need long, you know, need to hold long term or they're not part of your long term picture strategy, then definitely encourage you to look at those. And that would be part of the equation of okay, we could liquidate some of those to offset gains, um, and use that new capital to either, you know, again, increase the fleet, um, buy more bitcoin, you know, anything that makes sense for the business.

Speaker B: So let's say um, you have been running your mining operation with a mining hosting service, uh, provider and let's say due to some uh, extended repairs or maintenance, um, you have been offline and therefore let's say your mining operation has been uh, accumulating all these operating losses. Um, and how does that get carry over? Uh, forward.

Speaker A: Yes.

Speaker B: Whether you know, it's this year or. Sorry, go ahead.

Speaker A: Yeah, no, it's a good question. So what we're talking about here specifically is that your net position. So after you've accounted for all of your revenue, your expenses, you've got a net loss, right. And we'll just stick with $100,000 net loss. For simplicity's sake, you can carry that loss forward indefinitely. Meaning every year you've, you think of it as an accrued account that is at $100,000 and the next year you've got $20,000 of income. You potentially could offset some of that with that loss. Now there are limits. So generally you can only apply, I think it's 80% of taxable income in the future year. So you can't wipe out 100%. Even though you have 100,000 and you've made 20, you likely are stuck at 80% of that 20. That from the 100 you could apply, right? So you can take it down very significantly, but you'd still have 20% left of sitting in income. So you can't wipe 100% of it uh, going forward. And that's on the net operating losses specifically.

Speaker B: And are you, sorry, are you offsetting, can you offset wages or other business income like, or both.

Speaker A: It's basically the net of the following year. So to your point, you know, you would apply all your wages for the current year, all your other deductions against your revenue, you'd get to your net number, which, let's say you're in the green. 20,000. That's what that net operating loss can go against. Um, but again it can't offset 100% of it. It's ah, I think it's 80% in that year. Um, then there's the capital gain or capital loss carry forward bucket. So now this is, we've had, we've earned our bitcoin, paid taxes on it, we've sold it at a loss, let's say we've sold $10,000 at a loss. You can always offset the capital gains in the current year fully. Um, you can carry forward those losses indefinitely. But when you're carrying capital losses forward, um, you can only offset your ordinary income. So again, that previous net bucket up to like $3,000 for individuals, um, businesses. I'd have to double check the rules on the amounts but again it's very limited in how much of that can actually go against normal income. But you can carry it forward indefinitely. So that's a good point on that. You know, the end, the net operating loss is really where your business miners are going to be focused on. Okay, we've got something accruing. Um, you know, obviously Bitcoin is still volatile. We'll continue to see if we're still in this cycle phase or not. Um, because I don't think, you know, this current bull market certainly isn't over as of today. And so um, but when those drawdowns happen, you know, mining is a very, very competitive, tough business. And so that's where it's not going to be a surprise that you're in a loss position. But the good news is, hey, those losses can be carried forward. So then when we're back in the bull market cycle, you've got something to help offset some of those significant gains.

Speaker B: Awesome. Now, last question. Looking forward to 2026, are there anything you're watching in terms of, you know, like potential policy or iOS guideline changes, anything you're um, expecting that could have impact?

Speaker A: Yeah, as of right now, you know, from what we see, there's nothing significant. You know, I think, you know, of course the shutdown is interesting because I've seen, you know, potential opportunities for other bills to be passed, you know, in between or after as they make deals. So we're certainly watching that closely because I think to come, you know, that's usually when we have seen some significant policy changes. Right. Because they have to come to the table. Both sides are, hey, well we think we want to get, you know, another tax credit in for businesses or not to meet your side's thing, get to a deal. So we'll watch that. Um, otherwise not a ton on the radar. One thing though, that was very interesting, that actually I think this was last week, um, right at the end of September. If some of your viewers had seen that digital asset treasury, there was this concern, um, basically the inflation Reduction act created this corporate alternative minimum tax, um, which is like a 15 on larger firms book income. So what that means is like unrealized potentially fell in there. And there was a concern that unrealized gains on bitcoin would be counted in the total book income and then put these corporations in that bucket to have an additional 15% tax. And the IRS and Treasury came out last week and clarified that hey, unrealized gains on bitcoin and digital assets would not count towards that. So that was definitely a huge, very good thing to get clarification on. Uh, because, yeah, I mean first of all, unrealized gain taxes is a scary thought in general, um, for even businesses, right. I think there's a lot of opinions on how much tax business should pay. But when we're talking unrealized gains causing a tax payment, right, These are assets that, yes, Bitcoin's very liquid, of course, but still, you know, now the business is in a position where I have to liquidate this asset that I plan to hold long term to cover this tax due, um, even though I haven't realized it yet. So I was very happy to see that. I think that's um, definitely a positive on that front for, you know, and it applies to miners because while they're not the digital asset treasury companies, they, it's a similar model, right, where hey, their goal is to accumulate bitcoin, keep as much of it as they can. Um, they certainly have a lot more pressure on selling because they have to fund their operations. But generally we've seen many of them take that position of trying to accumulate and the thought of having to then get bumped into this 15 corporate tax due each year would only deplete that treasury. Um, and you know, certainly complicate the strategy part of their world for sure.

Speaker B: Yeah, definitely. Well, thank you so much, Nick. Always fun to talk to you on taxes. You know, as much fun as you can have talking about tax issues. But still, thank you so much for spending the time with us today and uh, we will be sharing your contact information and links in the show notes. And thanks for tuning in to the Compass Mining podcast. Remember to follow us on social for the latest insights and education on bitcoin mining. Keep hashing and see you in the next blog. Thank you.

Speaker A: Thanks Nina. Thanks everybody.