If you mine bitcoins it is counted as income based on the value of the bitcoins at the time you mine them. Yes, it's a huge pain to keep those kinds of records, but it is the legal way to do it.
It should be "0" when you mine it. At least this is certainly the case with speculative altcoins. After that it should just be treated as a commodity with capital gain applications, where you're initial cost was "0" and anything after that is pure profit.
A tax lawyer may tell you that the cost will include all the costs of the mining equipment (depreciated on a schedule) the monthly electricity, rent, and support costs.
Some people lose money mining. You don't pay tax on a loss.
Agreed, it is income at the time of mining. I am not convinced that BTC mining is like creating artwork for several reasons. Artwork does not have active markets that can be used to determine price at the date of creation. While art involves assembling supplies previously owned by the artist, bitcoin mining involves a point in time when the miner has control over something they did not previously possess. And, perhaps most telling is the matching principle in accounting that income and related expenses should be recognized together. So I doubt that deducting electric and equipment expenses now, while deferring recognition of revenue will be considered to be consistent. Then there is IRC83 which requires that deferred compensation (such as stock and options) be recognized at the fair market value when title transfers to the taxpayer, not when the investment is sold. And IRC988 requires income to be recognized when foreign currency is received for goods or services.
Regarding depreciation, in general for federal taxes, most miner expenses get deducted immediately not depreciated, because the business sets a $2,500 capitalization threshold, expensing anything below this threshold, and then accelerating depreciation of expenses over $2,500 up to IRC179 limits (often $500K). For state taxes it is possible that some expenses may need to be capitalized and depreciated. Don't forget to deduct telecomm expenses, training, reasonable business travel and home office expenses.
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