How the Big Beautiful Bill Impacts Bitcoin Miners: 100% Bonus Depreciation and What’s Next

Speaker A: The Big beautiful bill makes 100% bonus appreciation back on qualified property placed in service after January 19, 2025, and it makes it permanent.

Speaker B: Welcome to the Compass Mining podcast. I'm Nina Xiang, your host for today's episode. I'm thrilled to welcome back our guest, Nick Ward, co founder and partner at the network firm. Nick, it's great to have you back with us again.

Speaker A: Hi, Nina. Yeah, it's great to be here. Thanks for having me.

Speaker B: All right, so very exciting news, uh, back from July 4th when the one Big Beautiful Bill act was passed. Obviously, uh, tremendous impact to the overall crypto, bitcoin, Bitcoin mining sector. So let's maybe just uh, maybe share a little bit about your overall feeling about this, uh, this bill. And are you optimistic about the, the crypto and bitcoin sector long term?

Speaker A: Yeah, great question, Nina. Uh, with any of these bills, obviously there's, they're very large, there's a ton that goes into them. But with our focus, you know, we search for the tea leaves. And so ironically, bitcoin. Bitcoin mining is not specifically mentioned, but there is significant impact with some of the other, uh, broader topics.

Speaker B: Awesome. So let's go into bitcoin mining specifically. Uh, like you say, the bill is over a thousand pages long, but actually doesn't mention bitcoin at all. But of course there are clauses and, you know, uh, terms that's going to impact bitcoin mining. Um, yeah, let's go into those. Explain like how that's going to impact bitcoin mining operators.

Speaker A: Yep, yeah, there's, there's basically one key area and that relates to depreciation of capital or fixed assets, and specifically two key methods. And so what depreciation is, is when you purchase an asic, for example, you set a useful life to that, call it two or three years, and then you expense that over those years for tax purposes and book purposes. Um, previously there was a bonus depreciation bucket, which is one of the areas impacted, that would have a phase down approach. So you could start high at, I think it was 80 or 60%. And then the next year that would come down, you know, to 40% for a couple years and so on. The Big Beautiful bill makes 100% bonus depreciation back on qualified property placed in service after January 19, 2025, and it makes it permanent. So that impacts the 2025 taxable year for miners. And again it allows them to take 100% bonus depreciation.

Speaker B: And so is that January 2025 or.

Speaker A: Yes, yes. And what that means is you can fully deduct the entire cost of qualified property. So for bitcoin miners, that would be asics, servers, um, some cooling infrastructure and more in the year they acquire and start using them. So if they had acquisitions this year, they can take advantage of that. And the reason you do that. Right. Is to offset income and create or create a tax loss, reducing current year tax liabilities which will free up cash flow to either be reinvested in the business or pay off current debts, for example.

Speaker B: Mhm. And let's uh, maybe you can give us a specific example, you know, in terms of how that works after the bill is now passed versus, you know, comparing to before the bill how you know, depreciation would go.

Speaker A: Yeah. So before the bill that bonus was capped at certain percentages. Call uh, it 80%. Right. So if you bought $100,000 of Asics and put them into service, you could depreciate up to uh, 80 grand of those, but you'd still have 20 grand to then depreciate the next year and that percentage would drop for those assets with each year. Um, now you could take 100% of bonus and you know, and you can create that taxable loss which can be carried forward to future years and again, completely, you know, well, to some extent completely rid the tax liability and free up that cash flow.

Speaker B: And I remember last time you were on the podcast, you know, talked a little bit about when you depreciate those hardware costs, uh, there is a potential that uh, if you depreciate too much or all of them in the future you might be liable for some tax, um, liabilities. Right. So how does that work and how does that impact anything you just described?

Speaker A: Yep. So that is like, you know, I think we're referencing depreciation recapture there. So if miners end up, yeah, selling a machine before it's fully depreciated, um, there will be that. It's similar to selling bitcoin almost where you have that capital gains of what's my cost basis? Which essentially is zero because you fully depreciated it. And so you'd offset the proceeds against that for some capital gains. Um, so that's still in place. Uh, as far as I'm aware, uh, the beautiful bill did not impact that.

Speaker B: How about anything else? Any other tax implications?

Speaker A: Yeah, so they're still uh, on depreciation. There's the other method called section 179. And so this method is very similar in the bonus sense of this applies specifically to assets you've purchased in the current year and placed in service. Um, but you can take full depreciation up to essentially getting you to break even. So you can't create a tax loss with 179. But if you had $100,000 of income, of net income and you, let's say you bought and put in service $200,000 of ASICs during the year, you could take 100% of $100,000 on those ASICs. So essentially half of the cost of the ASICS you place in service, you could fully depreciate in that year to put you at break even and avoid any taxable income. Um, they also upped the ceiling of 179 because 179 does have ceilings in terms of you can't create a loss and a dollar amount. Um, so that was up to 2.5 million which was previously 1 to 1.25. And you know these sound very similar. 100% bonus, 100%, 179. But 179 allows uh, a little more flexibility in applying depreciation because you can take it by fixed asset class and then apply bonus to the remaining bucket because again the 179 is only in the year you place it in service. So those a six in year two that you couldn't apply it to, you can't choose to do 179 then. But you can roll into bonus. Um, it is utilized by major mining players, larger operations, but it's definitely uh, more strategic tool for kind of the smaller mining operations or even individuals that are running um, smaller mining ops.

Speaker B: Mhm. Maybe explain a little bit how the big miners with many, potentially thousands of miners versus smaller miners, like how would they potentially approach this? Uh, depreciation changes differently.

Speaker A: Yeah, usually the larger players are going to be more aggressive. Right. Because they're earning, uh, you know, they're likely profitable when I say profitable in that just mining operation itself. They have you know, much vaster opportunity uh in terms of the hash rate they can produce. So they're getting larger rewards against their cost of goods sold. They're going to have gross profit to offset against where smaller operations. You know, unless they have a very favorable utility cost set up or access to maybe some of the flared gas, other things like that. They're likely mining very close to break even or at a loss. And so they're going to want to be a little more strategic in terms of letting fleshing that depreciation out over years, opposed to taking it all at once or being able to apply 179 just to that specific group in the current year to get them to break even and then still having that bonus available in the next year or 2M.

Speaker B: So that's really helpful. Thank you. Aside from depreciation, any other, you know, items or uh, clauses from the big built flow bill that's going to have an impact?

Speaker A: Nothing that's popped out, you know, as directly impacting minors as the depreciation. I will say the bill allowed for basically saying we want to support, support the, and establish the Genius act and other pro crypto regis legislation. And obviously, you know, we're recording this on July 22. The Genius act was passed last week. And you know, the Genius Acts very much focused on stable coins, not bitcoin. But as we know, there's generally positives for regulation on that side of the House. Specifically, stable coins has been generally good for bitcoin. You know, the big beautiful bill does still increase federal spending and debt, uh, which generally means inflation is going to continue and the dollar will weaken, which, um, you know, for bitcoin generally is a good thing and other hard assets. So I think those are kind of other secondary, um, impacts that I view as positively for bitcoin and miners.

Speaker B: Well, yeah, so actually I just went to a celebration party yesterday in D.C. uh, for the Genius act passing. Definitely a lot of optimism, for sure.

Speaker A: Yep. Yeah, it's, uh, the clear regulations are good. Um, I think there's a lot to unpack with the Genius act and there's with any legislation. Right. Pros and cons and then things we'll have to see over time how they work out.

Speaker B: So after the big, big beautiful bill was passed, like, have you had more conversations with clients in terms of, you know, trying to take advantage of this?

Speaker A: Uh, certainly, yeah. And Even, you know, Q1, Q2 planning with clients, this was something that we, we knew was in the drafts that was specifically the 100% depreciation. So, you know, anytime you're advising with legislation and things that could come, you want to be careful because you don't know until it passes. Um, but we certainly were making sure they considered, hey, there's a possibility of depreciation, um, getting back to 100%. And really what that means is a, you assess that because as you're going through the year, if you are going to expect to have taxable income, you need to be making estimated payments, things like that. So that's one piece where we can consider, okay, if we know that 100% depreciation, which we now do, can be applied, then perhaps we don't have to make those estimates because we won't have that tax liability. Um, and then the other piece is then thinking ahead to uh, capital expenditures. So clients, we advise on that kind of CFO advisory side and thinking, you know, two, three years down the road of how they wanted to apply and expand, uh, hash rate, make purchases. Um, this definitely creates a opportunity to reevaluate the plan because uh, anytime you can take the 100% depreciation, it allows for kind of more cost effective purchases. Uh, again, you're freeing up cash flow that may have been set aside for tax liabilities that could be used to, to um, bring purchases up further, uh, or sooner than you had planned.

Speaker B: Awesome. I guess, you know, the, the mining business will become even more competitive.

Speaker A: Yeah, it, I mean I've always said I've been in a lot of industries in my career and one of primary was construction, which I always thought was a highly competitive space. But I think mining is the ultimate competition, economic competition, um, especially because really location certainly, uh, impacts and when this is a positive tax impact. So this is good. But if those go the other way, as you know, we can unplug and go plug in somewhere else.

Speaker B: Yes, very, very possible. So let's talk about something else that didn't make into uh, the big beautiful bill. Even though people had a lot of hopes for it. Uh, you know, the um, double tax, the so called double tax issue, and also the dollar, the minimus tax, uh, exemption. I think maybe you can first explain a little bit about the double taxing, uh, problem. Um, I recommend everyone to read the article you wrote for us, which is on our website. It has the most comprehensive information about bitcoin mining tax considerations. But still, for the purpose of this podcast, maybe you can first explain, Glenn, your view on the double taxing, uh, problem.

Speaker A: Yep. So the double taxation, what, what Nina's referring to is that when miners, uh, mine Bitcoin, uh, that mining reward and the transaction fees that come with it is treated as income to them or revenue. So that is phase one. They've earned the bitcoin that day. Um, so whatever the US dollar price and the amount of Bitcoin they have, that's the taxable revenue that they've earned. Then if they don't liquidate that bitcoin immediately, they are now subject to capital gains taxation when they do liquidated for fiat or spend it for services or to purchase asics. So, well, the transfer piece depends on where it's being transferred. So if you're transferring Wallets, um, generally that's not taxable. Um, but if it is, you know, transferred to another related party for investment or things like that, it definitely would become taxable.

Speaker B: Oh, that's great to know. So there is a difference, correct?

Speaker A: Yeah, there definitely is a difference. And it is something, though, that comes back to why. And I think we're going to get to some tips at the end of just things to prepare. But why? You need to track your internal ledgers very closely so that you don't get to the end of the year. And your tax, EPA or your accounting team is wondering, hey, I see these transfers out to other wallets, maybe new wallets, what are these? Were they taxable? And you know, again, hoping they actually track that or identify it. Most softwares will, but, um, you never know. And so you want to make sure you have good records. And you know, when you did things like that verse, like I said, yeah, if you spend it, liquidate it, then you have the assessment of. All right, what was my cost basis? Which again, was ever the value when you earned it. So just simple sake. Let's say I mined a bitcoin Today, it was 120,000. That's my revenue and my cost basis. And I sell it six months from now at 150,000. I've got a $30,000 capital gain, um, and which would be short term, so much higher rates, um, for capital gains under one year, longer term, you get the more beneficial rates, generally at, ah, 15%, 10% and so on, depending on the tax bracket.

Speaker B: And that's very different. Say, comparing to like a gold miner, correct?

Speaker A: Yeah, the gold miners are not mining to the sell. And that's usually the analogy. Right. Or even farming. Right. If a farmer plants seeds and their crops grow and they harvest the corn, they're not paying income on that corn until they actually sell it. Um, so Senator Lummis had an amendment to defer that income recognition until they actually sold or used the bitcoin, which was taken out. Um, frankly, this has been a long running topic for a few years now on mining that people have argued about. I, I could see it going two ways. I, I feel like we'll never see a complete wipe of the income received from miners. But what would make sense to me is splitting the block reward and the transaction fees. And basically the block reward, which is that block subsidy of 3.25 bitcoin that doesn't need to be taxable upon receipt until you actually spend it. But the transaction fees, you would do that revenue calculation and Recognize it. Because you could argue that, hey, miners, part of what they're doing is that service of putting transactions into a block, getting them confirmed on chain, or, well, producing them on chain to be confirmed by the nodes. And thus they're doing a service at that time, and they're being rewarded or compensated for that service at the same time. And thus, uh, that would make sense to be taxable. And setting the block reward subsidy aside, to me, makes more sense. You know, I don't. I don't think Senator Lummis's bill or any other bills have gotten that nuanced. But if they want to gain support, I could see a better breakdown, um, being more specific, maybe giving it some better life to get, um, get passed. And I do know Senator Lummis has reintroduced that in a separate standalone legislation with some other things. So. So we'll see. We'll continue to watch that.

Speaker B: Yeah, I think that nuance is going to be really difficult to explain to some of the lawmakers. So, um, and considering how low a percentage of the transaction fees are, ah, as part of the block reward, that difference, I guess they decided it's not, uh, worth their energy to pursue. Maybe, um, completely, you know, speculating here, but I think, you know, uh, in France, actually, you have to pay taxes for any Bitcoin, um, ah, let's say positive returns that you haven't even realized. So unrealized gains on your bitcoin, you have to pay taxes on those, which is crazy.

Speaker A: Very crazy. Yeah, I know there were rumblings of unrealized tax maybe a year or two ago. I. I would really hope we never get there, because again, you put people in a position where now I have to liquidate something or come up with cash to pay a tax on a gain I haven't realized yet. And obviously, especially with bitcoin, you know, it's still very volatile and just could put people in a very, uh, ridiculous predicament. And I. I just. Yeah, I hope we never see that here.

Speaker B: Yeah. Yeah, definitely. So let's hope we have, um, more successes in terms of, uh, um, crypto legislation. Let's hope that double taxation clause can somehow get passed into law. So fingers crossed on that. How about for yourself, what other kind of legislative initiatives you're paying attention, hoping to, um, have for bitcoin or bitcoin mining?

Speaker A: Yeah, so what I mentioned previously. So Senator Lummis has the crypto tax overhaul, so it includes the double mining and the double tax, which does refer to mining and staking rewards until sale. Um, it also has the de minimis which was something that also got taken out of the big beautiful bill. So that was trying to set a 600 diminishment exemption. So essentially um, you, if you spent any bitcoin purchase or sale under $600, you wouldn't have to do the capital gains. You know, what was my cost basis, what were my proceeds, what's the difference that I owe tax on? Um, so hopefully we see that because you know, obviously people do use bitcoin as money see it that way, but a huge barrier as well. If I use it, I have to do all this tax reporting so I'll just defer to spend other coins or, or not do so. And, and then you know the, the IRS spends a ton of resources then auditing certain players and doing all the work to track down these. And I think it would be good to at least set some de minimis and you know, especially with things like lightning proliferating just would make sense to let's not waste our time on these little dollar amounts. Obviously larger ones you still can focus on where you know ultimately the most tax uh, is available to be paid and really where focus should be. So that's something in her bill that we're continuing to watch. Um, it also would impact like wash trading which is uh, essentially it's something specific to stocks. So basically if I sell a stock at a loss, I can't realize that loss for tax purposes if I repurchase the stock within 30 days. Right, because basically they're avoiding, hey, sell it a loss, buy it right back so I can keep it in my portfolio but get a tax loss. Um, because of the tax, the way the tax rules are written, that hasn't applied to crypto. Um, and I know that's something on the IRS's radar for a while to address that. Um, so that's something in her roles would be to clarify those trading rules and things around lending. So that's definitely one we are keeping an eye on. Um, the recently passed genius act as we mentioned, um, we've been going through that we'll have our own uh, take on that coming out either this week or next. Um, but that's very much focused on stable coins. Um, but again as we said earlier, you know, anything positive for the space and specifically stable coins generally has had a positive impact on bitcoin. Many um, people still on off ramp with stables when going into bitcoin. So I think uh, that's positive. And again the setting regulations where now banks are more comfortable serving the space. I Think also impacts miners, because I'm sure most bitcoin miners that have been doing it for a few years all have that story of trying to find a bank that would just work with them. Um, even though, you know, they may say we're liquidating all our bitcoin, we're not holding it, the banks still viewed the industry as very risky. So I think that helps bring that risk down, bring understanding. Um, and then the last one is the bitcoin strategic reserve. Still watching that, right? Because obviously we got some announcements they're going to hold it. I know a few weeks ago there were rumblings that we may not be holding as much of the seas bitcoin as we previously thought. And so just keeping an eye on that, you know, obviously if the United States were to set something up where they're actually purchasing bitcoin or allocating resources to purchase or obtain more, hold more, it obviously impacts the space.

Speaker B: Um, yes, since you mentioned the Genius act and you are prepared to share your views on it, just give us a, you know, a summary of your take on it.

Speaker A: So the summary is, you know, it establishes clear guidelines to stablecoin issuers in the US and so things like you can't do yield bearing stablecoins, um, it lays out specific requirements for what reserves are held in. So dollars, treasuries, pretty conservative, um, backing, they, uh, have to be 100% reserved. Reports will go up to the Treasury. You need, um, you need auditors to do monthly attestations of the reserves and then annual audits of the issuers. Um, so those are all good things. You know, I think with any regulation it does create now kind of a very costly barrier. Um, where I think I generally am for, um, obviously clear regulations are good, um, but things that allow for innovation to fly in terms of, hey, you know, you can spin up stable coins rather quickly, very low cost. Um, but then managing them and growing them certainly has a cost. And that revenue model is basically, hey, assets under management. What yield can we go earn? So it's a very, you know, it's not as uh, intense as bitcoin mining in my opinion, but it's, it's up there because again, it's really assets, uh, under management game in terms of where your revenue is coming from. So the more you have, the more interest you can earn and keep going. Um, but these regulations, the audit requirements, things like that are now going to create a pretty up another additional upfront cost which is, um, I think obviously this is part of a service we provide. So those Attestations are good and they're, they're beneficial not just to the public but to the issuers themselves to have that check constantly. Um, but I could see this kind of starting to put uh, less new players in the space and we'll see kind of the, the standard bigger players continue to thrive tether circle. And I wouldn't be surprised if now we see some banks entering as well because now they have the clear path. All right, we know what we need to do if we want to issue one. Um, and they're obviously well positioned to do that.

Speaker B: Yeah, that's awesome. Um, so fully agree that stablecoin is kind of the entry point for a lot of um, non crypto population. It's just going to create this adoption, uh, stimulus or engine for bitcoin and other crypto. So that's definitely awesome. So let's go to tips. So you said earlier we're going to give people tips. Um, let's go right into it in terms of you. Whether it's in light of the big beautiful bill or anything else you mentioned previously about cost basis and how to track those.

Speaker A: Yeah, I mean just starting with the big beautiful bill and I kind of alluded uh, to this earlier with our clients. But yeah, making sure you're reevaluating your 2025, you know, ASIC expansion, both plan and just what you've done so far. So make sure you're setting that time now with your advisors to go analyze. All right, what have we put into place this year? Ensure that the ASICS are certainly qualified property. But the other areas like uh, the cooling infrastructure, things like that, identify what all is qualified in these buckets. So you can then apply the bonus appreciation or 179 if you want to. Um, things like real estate for example are not. Um, so if you have to purchase, you know, if you purchase land, built a new site, um, that would be kind of a differentiator in that analysis. Okay, real estate we can't apply to. But then what other equipment can't, can we? Um, from there you would assess your 25 tax plan. You could basically lay that out. Now you know, you can apply the 100% bonus or 179. Uh, but you also then take it further to. Yeah, what has been your plans? Uh, to expand, obtain ASICs. Maybe this speeds that up, pull some purchases for uh, sooner. Um, or maybe not. But that's definitely one tip is to go ahead and make sure you're talking to your advisors, your cost segregation analysis team, um, so you can identify what property qualifies, what doesn't, and then go from there. Um, and then, yeah, on the tracking, it's always, you know, if you're not doing tracking of, again, revenue coming in, uh, treasury management. Most Bitcoin miners now, I'm sure are putting some of the Bitcoin into Treasury and holding it long term. Um, but they've got to pay to keep operations, mining going, increase hash. So there's probably a lot being liquidated still. And so making sure you've got good reconciling schedules of all that, um, tracking where things are sent and when, um, so that you can again in that tax analysis, that's a huge part of the equation. And so when you're doing depreciation, if you don't know what your net income or profit picture is, then you can't really do much with the depreciation side yet. So making sure you're doing that, um, and even maybe you didn't put that many ASICs into service this year, so you are going to have taxable income. So you want to be making estimated payments so that you avoid, you know, additional penalties and interest on not doing that. Um, and then the last thing I'd say is for individuals especially Compass, you know, I'm sure you have plenty of individuals that maybe have a few machines. They were doing it as a hobby, but maybe they plan to expand machines or they, they do have a decent fleet, but they haven't formalized it as a separate business. Um, and I'll call back to the, the blog you've mentioned that we did previously, because we talked about this. You know, basically mining as a hobby versus business, um, you know, taking that to the business step and basically creating an llc, tracking it, treating it that way will allow individuals to take it, um, take advantage of the depreciation changes as well. So I think definitely any individuals listening that are expanding or have just been maybe haven't taken the time to set it up officially, I definitely recommend doing so. Um, of course, you know, if it's truly a hobby, then you can't take advantage of that. But I think anyone that's got more than a handful of machines as a totally fair argument that, hey, this is a side business. And so making sure they've taken the steps to create an llc, set up a ledger to track all that and take advantage of the appreciation is definitely something they want to do.

Speaker B: Well, that sounds, you know, I don't feel like I can do that. Uh, definitely for bitcoin binders big and small, you need professional Help. And Nick, maybe do you want to do a plug, uh, about your own firm? Where can people find you? How can they contact you?

Speaker A: Yeah, yeah. So, uh, I'm on LinkedIn. We have a site thenetworkfirm.com where you can book calls with us. And yeah, we certainly, we advise, um, all the way from, hey, you've got a new business you're going to start that's mining and you want to talk through. How should that be structured? Um, there's all these nuances in terms of, yeah. What type of entity you'll be taxed as, and we can help you along the way. If you need outsource bookkeeping or help, we can do that as well. So we could produce, manage your books, make sure these reconciling schedules I'm talking about are all done timely. Advise, uh, you on, uh, making those estimated payments, all those things. So definitely check us out atthenetwork firm.com. i'm also on LinkedIn and Twitter at, uh, triple entryCPA on Twitter and then LinkedIn. Nick WardCPA. So please reach out, you know, if you think we can help, if you just want to talk, talk about bitcoin. We always love doing that too. So please shoot us a message and we'd love to meet you.

Speaker B: Awesome. Thank you so much, Nick, for taking the time today. And thank you for tuning into the Compass Mining podcast podcast. Be sure to follow us on social media for the latest updates, insights and episodes. And stay tuned. We'll be back soon with more conversations from the front lines of bitcoin mining.