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Compass Helps Bitcoin Miners Sidestep Taxes By Connecting to...
News

Compass Helps Bitcoin Miners Sidestep Taxes By Connecting to IRA

Outside of accountants, no one likes paying taxes. That’s especially true of Bitcoin miners, whose crypto earnings are taxed in fiat dollars.

Compass Mining, which sells hardware and hosts mining services, has struck a deal with asset custodian Kingdom Trust and its Choice retirement accounts to take the sting out of crypto mining. Compass retail customers can now plug their Bitcoin mining gains directly into their Choice account. The money goes directly into an IRA, a tax-deferred retirement account, instead of being counted as taxable income by the IRS.

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Shehan Chandrasekera, head of tax strategy at CoinTracker, a crypto tax calculation tool, explained to Decrypt that there are usually two taxable events with Bitcoin mining, which is the process by which transactions are validated on the blockchain and new Bitcoin gets created.

First, he said, “mining rewards are taxed at the time of receipt” using the market value of the coin when it was received. The second taxable event occurs when those coins are sold; if the coins have increased in price since being mined, they’re subject to capital gains. (It can also go the other way, allowing the miner to claim capital losses.)

An IRA kicks the can down the road. There’s no taxable event at the time of mining, and the person is only taxed when he or she withdraws funds at retirement age.

Choice by Kingdom Trust is unique in that it mingles the dollar contributions that IRAs were built for with Bitcoin contributions. Like a traditional IRA, contributions are capped at $6,000 a year for people under age 50.

There is a caveat. To get access to this tax-advantaged mining, you have to buy the hardware out of your IRA funds. “Once it is purchased,” a Kingdom Trust spokesperson told Decrypt, “it functions similarly to a rental property that some own in self-directed IRAs.” The upshot is that any mining income earned doesn’t count toward that $6,000 contribution—just as interest earned in a mutual fund doesn’t count either.

The two companies says there are added benefits, including limiting “the control of large mining companies,” property ownership, and minting BTC at a “below-market rate.”

Source: Decrypt.co

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