Coin miners face two major accounting challenges. The first consideration is how to deal with the operation’s financial expenses. Cloud mining means renting space on someone else’s rigs, which are computers that are used to mine cryptocurrencies. The rental cost of the rig is deducted from the company’s income during the period in which it is rented. No computers or software are needed by the miner, so there is nothing to profit from here.
Alternatively, you could purchase the mining equipment and run your own operation in-house. According to this, computer hardware and software will be written off as they are no longer in use. In addition, there will be a hefty monthly electricity fee, which will be added to the cost over the course of the contract. Electricity costs should not be capitalised.
Incorporating Crypto Mining Currency into the Analysis
How to deal with cryptocurrency is the second major accounting issue. This means you don’t have to wait for someone else to buy your currency before you can count it as income. Revenue is determined by the currency’s current fair market value at the time of creation.
No further accounting is required if you then sell the cryptocurrency and convert it to cash. Some miners, on the other hand, are waiting to see if their cryptocurrency appreciates in value before selling it. In the event that this is the case, remember that cryptocurrency is an intangible asset, rather than money.
That means that if the market value of the currency later falls, you will have to lower the value of the asset. Intangible assets can’t be written up to a higher value under generally accepted accounting principles, so you can’t write them down to a lower value. To summarise, there is only one way to account for cryptocurrency’s value: down.
Your crypto currency’s value can only be increased if you actually sell it for more money.
In the case of cryptocurrency mining, Section 179 can be applied
Are fixed assets associated with the operation eligible for Section 179 of the tax code, which provides an immediate tax deduction? There’s a limit of just over $1 million on the deduction for 2021, but it’s possible. Section 179 also has the limitation that the amount that can be deducted cannot exceed the total annual taxable income of the company. Excess deductions can be carried over to the following year’s tax return.